Credit Card Debt Is Bad for More Than Just Your Finances

Yet while card balances remained $140 billion lower in the middle of this year than at the end of 2019, they began ticking upward in the second quarter of this year, rising $17 billion above the first quarter, according to the New York Federal Reserve.

Some indicators suggest household debt is becoming a concern for some consumers. The share of people rating their debt-to-income ratio “very unhealthy” doubled in the third quarter, to 16 percent from 8 percent, according to the American Consumer Credit Counseling Financial Health Index.

And an online survey by Bankrate.com found that more than a third of people who had card debt before March 2020 saw their balances grow during the pandemic.

Here are some questions and answers about managing credit card debt:

What is the best way to pay down credit card balances?

Because credit cards typically charge double-digit interest rates, most financial advisers agree that you’ll save the most money if you focus on paying down the card with the highest interest rate first. “I prefer the avalanche method,” said Benjamin Jacobs, a fee-only financial planner in Athens, Ga., using a common name for this approach.

Here’s how it works: Make the minimum payment on all of your cards to avoid late fees, but put any extra money you have toward the highest-interest balance. When that balance is paid off, move on to the next card, and so on.

But some people may be more motivated by paying off the card with the smallest balance, regardless of its interest rate. The mechanics of this approach, sometimes called the “snowball” method, are the same: Pay the minimum on all cards, but put extra cash to the smallest balance until it’s gone, then move to the next card. “I like the snowball, because you have instant success,” said Melinda Opperman, president of Credit.org, a nonprofit financial counseling agency in Riverside, Calif.

If you feel overwhelmed and are falling behind on payments, you may consider seeking help from a nonprofit credit counseling agency. Those agencies can help assess your situation and negotiate a plan with your card companies to allow you to pay off balances over time — typically, two to five years. The National Foundation for Credit Counseling can help get you started.