Investment account
Retirement
Invest for kids
Sustainable ESG portfolios
Bitcoin ETF
Investment account
Retirement
Invest for kids
Sustainable ESG portfolios
Bitcoin ETF
More than 41 percent of American households carry credit card debt, with an average balance of almost $6,000, according to 2019 figures. If you’ve become accustomed to carrying credit card balances, you may be paying hundreds of dollars in interest payments every month, and actually paying off the debt may seem impossible. But it’s not.
Credit card debt can be overwhelming, but it’s not insurmountable. To pay it off and move on with your life, you have to get a firm handle on what you owe and develop a plan for getting it paid.
Start by writing down exactly what you owe. If you’re carrying balances on more than one credit card, create a list that includes each card, how much you owe on it, the monthly payment, and the interest rate.
Many people mindlessly pay the minimum payments or a little more each month without ever having a true understanding of how much they actually owe. Put it in writing so you’ll be fully aware of what you owe and how much interest you’re throwing away on those balances. This list will help you make a plan for paying off the debt—and give you an incentive for getting it done.
There are two common strategies for paying off credit card (and other debts): the snowball method and the avalanche method. You can be successful with either one, so you need to choose the method that works best for you and fits your personality.
With the snowball method, you focus on paying off the smallest balances first. You organize your debts in order by the size of the balance and pay only the minimum payment on each one except the smallest balance. Then you pay as much as possible toward that card until it’s paid off, moving on to focus on the next smallest balance. While you could be paying more interest on some of the larger balances, it takes less time to pay off the smaller balances. You will be able to experience success more quickly, which may spur you on to keep chipping away at your debt.
The avalanche method is similar but requires you to organize your debts by interest rate. You focus on paying off the one with the highest interest rate first, paying only the minimum payment on all others. Once you’ve paid off the card with the highest rate, you move on to the one with the next highest rate, and so on. This method aims to help you avoid paying more interest over a longer period of time, but it may take longer to celebrate success.
If you’re serious about getting out of credit card debt and staying out of it, think about the reasons you ended up here. For most people, credit card debt is a symptom of overspending. Unless your credit card debt was a result of unexpected medical expenses, you may have to examine your habits to avoid continual debt.
For instance, if you view your credit card as a means of purchasing things you can’t afford at the moment, it’s a matter of changing your mindset. Your credit card should be available only for emergencies that you can pay for completely when the bill arrives, or to make small purchases each month to pay off as a way of building a strong credit score.
To develop a healthier attitude toward credit, you may need to take control of your spending. Create a budget if you don’t already have one and stick to it. Include savings in your monthly or weekly spending plan so that you can begin building a financial cushion. If you have an emergency, you can fund it yourself rather than relying on a credit card moving forward.
You’ll be able to pay off your credit card balances quicker if you can come up with extra money to help. Consider cleaning out your closets and selling the things you no longer use or need—and put all the proceeds toward lowering your debt.
Talk to your cell phone provider, cable provider and utility company and try to negotiate lower monthly bills. In many cases, there are special promotional rates that you will only get if you ask. Apply the extra money toward your debt payments.
And regularly look for other ways to reduce the amount you spend so that you can pay down credit card debts with that surplus money. That may include eating out at restaurants less often, using public transportation or carpooling, and cutting back on entertainment or vacations.
For some people, transferring high-interest credit card debt to a lower-interest form of debt can be a good idea. That way, you can save money on interest while working to pay down the debt.
A balance transfer credit card is one option for transferring high-interest debt to lower-interest debt. Some credit cards offer zero interest on balance transfers for a set period of time, such as 12 months. If you’re committed to paying off the debt before that zero-interest period is complete, this may work for you. But if you think you may be tempted to make new purchases with the card, resulting in an even higher balance, it’s not a good idea. When your balance transfer period is over, you may be saddled with an even higher interest rate than you started with.
A personal loan is another vehicle for transferring high-interest credit card debt to a lower-interest option. A secured loan such as a home equity loan can usually offer a lower interest rate because it’s secured by your home. If you take out a secured loan to pay your credit card balances, then you can pay less interest as you work through paying off the loan. However, if you default on the loan, your home—or whatever asset is used to secure the loan—could be at risk.
Whatever method you choose, working to pay off credit card debt will help you on the path toward other financial goals. When you’re not spending money on credit card interest each month, you’ll have more available to save and invest.
This material has been presented for informational and educational purposes only. The views expressed in the articles above are generalized and may not be appropriate for all investors. The information contained in this article should not be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product. There is no guarantee that past performance will recur or result in a positive outcome. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions. No level of diversification or asset allocation can ensure profits or guarantee against losses. Article contributors are not affiliated with Acorns Advisers, LLC. and do not provide investment advice to Acorns’ clients. Acorns is not engaged in rendering tax, legal or accounting advice. Please consult a qualified professional for this type of service.
Nancy Mann Jackson is an award-winning journalist who specializes in writing about personal finance, real estate, business and other topics.
© 2022 Acorns Grow Incorporated | Disclosures | Accessibility
This website is operated by Acorns Advisers, LLC, an SEC Registered Investment Advisor. Brokerage services are provided to clients of Acorns Advisers by Acorns Securities, LLC, an SEC registered broker-dealer and member FINRA. Member of SIPC. Securities in your account protected up to $500,000. For details, please see https://www.sipc.org. Checking accounts and debit cards are issued by Lincoln Savings Bank or nbkc bank, Members FDIC.
Important Disclosures: Investing involves risk, including loss of principal. Past performance does not guarantee or indicate future results. Please consider, among other important factors, your investment objectives, risk tolerance and Acorns pricing before investing. Diversification and asset allocation do not guarantee a profit, nor do they eliminate the risk of loss of principal. It is not possible to invest directly in an index. Any hypothetical performance shown is for illustrative purposes only. Such results do not represent actual results and do not take into consideration economic or market factors which can impact performance. Actual clients may achieve investment results materially different from the results portrayed. Round-Ups® investments are transferred from your linked funding source (checking account) to your Acorns Invest account, where the funds are invested into a portfolio of selected ETFs. If you do not maintain an adequate amount of funds in your funding source sufficient to cover your Round-Ups® investments, you could incur overdraft fees with your financial institution. Only purchases made with a funding source linked to your Acorns account with the feature active are eligible for the Round- Ups® feature. Please note that a properly suggested portfolio recommendation is dependent upon current and accurate financial and risk profiles. Clients who have experienced changes to their goals, financial circumstances or investment objectives, or who wish to modify their portfolio recommendation, should promptly update their information in the Acorns app or through the website. Actual Acorns Earn rewards investments are made by Acorns Grow, Inc. into your Acorns Invest account through a partnership Acorns Grow maintains with each Acorns Earn partner. Acorns Subscription Fees are assessed based on the tier of services in which you are enrolled. Acorns does not charge transactional fees, commissions or fees based on assets for accounts under $1 million. Acorns Checking clients are not charged overdraft fees, maintenance fees, or ATM fees for cash withdrawals from in-network ATMs. Please see your Acorns Subscription Center or Account Statements for a description of the fees you pay to Acorns for its services. Third Party Quotes shown may not be representative of the experience of Acorns customers and do not represent a guarantee of future performance or success. Please click on each testimonial to review the context from which this quote was taken. Acorns, Round-Ups, Real-Time Round-Ups, Invest the Change and the Acorns logo are registered trademarks of Acorns Grow Incorporated. All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them. Acorns reserves the right to restrict or revoke any and all offers at any time.
Acorns does not provide access to invest directly in Bitcoin. Bitcoin exposure is provided through the ETF BITO, which invests in Bitcoin futures. This is considered a high-risk investment given the speculative and volatile nature. Further information and risks available via the disclosure link above.
Compounding, generally, is the growth of principal investments due to the reinvestment of dividends without withdrawing funds from the account. Acorns investment accounts do not pay interest, so the impact of compounding may be limited. It is not an investing strategy and does not assure positive performance nor does it protect against losses. It does not take into account market volatility and fluctuations that will impact the value of any investment account.
The ETFs comprising the portfolios charge fees and expenses that will reduce a client’s return. Investors should consider the investment objectives, risks, charges and expenses of the funds carefully before investing. Investment policies, management fees and other information can be found in the individual ETF’s prospectus. Please read the prospectus carefully before you invest.
1 Early Payday depends on timing of the submission of the payment file from the payer and fraud prevention restrictions. Funds are generally available on the day the payment file is received, up to 2 days earlier than the scheduled payment date. Timing may vary.
2 All banking services and FDIC Insurance provided through Lincoln Savings Bank or nbkc bank, Members FDIC.
Acorns also offers an Acorns Checking deposit account. Acorns Checking accounts are issued by Lincoln Savings Bank or nbkc bank, Members FDIC, and are FDIC insured up to $250,000. Acorns is not a bank. Acorns Visa™ debit cards are issued by Lincoln Savings Bank or nbkc bank, Members FDIC for Acorns Checking account holders. “Save and Invest” claim refers to a client’s ability to utilize the Acorns Checking Real-Time Round-up feature to invest small amounts of money from purchases made using an Acorns Checking account, and seamlessly investing those small amounts using an Acorns Investment account. Requires both an active Acorns Checking account and an Acorns Investment account in good standing. Real-Time Round-Ups® are accrued instantly for investment during the next trading window.
Any balances you hold with Lincoln Savings Bank or nbkc bank, including but not limited to those balances held in Acorns Checking accounts are added together and are insured up to $250,000 per depositor through Lincoln Savings Bank or nbkc bank, Members FDIC. If you have funds jointly owned, these funds would be separately insured for up to $250,000 for each joint account owner. Lincoln Savings Bank or nbkc bank utilizes a deposit network service, which means that at any given time, all, none, or a portion of the funds in your Acorns Checking accounts may be placed into and held beneficially in your name at other depository institutions which are insured by the Federal Deposit Insurance Corporation (FDIC). For a complete list of other depository institutions where funds may be placed, please visit https://www.cambr.com/bank-list. Balances moved to network banks are eligible for FDIC insurance once the funds arrive at a network bank. To learn more about pass-through deposit insurance applicable to your account, please see the Account Documentation. Additional information on FDIC insurance can be found at https://www.fdic.gov/resources/deposit-insurance/.
For additional important risks, disclosures and information, please visit https://www.acorns.com/terms/
About Author
