PROVIDENCE, R.I. (WPRI) — A new survey shows credit card debt is soaring, with consumers racking up $71 billion in debt in 2015.
According to CardHub, the average household with credit card debt owes $7,879. With those thin pieces of plastic being all too easy to swipe sometimes, a financial analyst with CardHub said the first step to managing your debt is to change your spending habits.
“Something has to give,” said Jill Gonzalez. “These spending habits can’t keep continuing.”
The new numbers released by CardHub show a 24 percent increase in credit card debt from 2014 to 2015, with most of it being charged in the last quarter of the year. Gonzalez said a lot of that can be contributed to consumer confidence, which while great for the economy, could lead to another financial crisis like we saw in 2008.
“We’re also seeing a little bit of pent-up demand still,” Gonzalez added. “Especially with the older millennials. People have been saving up to buy houses, to buy new cars, but with those purchases, the mortgages or car loans, comes a lot of other major purchases that are financed with credit cards.”
Gonzalez said there are a few ways you can strategically pay down your debt. The first is called the “island method,” in which you’ll have different cards for different types of transactions.
“Say you have a balance that you want to switch to a 0 percent balance transfer card, that’s a good idea if you’re paying down a lot of debt on one card,” she explained. “If you do have things that you buy on a regular basis, from groceries to gas, pick a great rewards card that you pay off in full by the end of each month so you’re really getting the bang for your buck there.”
Another is called the “snowball method.” For that plan, pick the card with the highest interest rate and focus on paying that off first with payments above the monthly minimum, then move to the card with the next highest interest rate and so on.
If you’re able to pay more than the monthly minimum, Gonzalez said you could save thousands of dollars in interest in the long run.