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Dealing with Credit Card Debt: How to Get Debt-Free

If you’re saddled with credit card debt, you’re not alone — the average American household has more than $15, 000 in credit card balances. But with a good payoff plan, you can be debt-free sooner than you think without hurting your credit. Let’s dive in!

In this article:

Understanding credit card debt and interest

Before you get rid of your debt, you need to know how credit card debt works. Each month, you receive a credit card statement detailing the retailers and prices of your purchases. Depending on your credit card, you generally have between 21 and 25 days from the date you receive the monthly statement to the due date.

The statement will have a new balance and a minimum payment. The minimum payment is the least amount of money you can pay to keep your account in good standing. But to avoid accruing interest, you need to pay the new balance. If you don’t pay the whole balance, you’ll accrue interest on your average daily balance, and it will be added to your remaining balance.

Let’s go through an example to show how interest is calculated. Say you have a credit card balance of $2, 000 and an interest rate of 18%. You make two payments before the due date — one payment of $500 on day 11 of accruing interest and another of $500 on day 21. In this case, you’ll incur $22.05 in interest. For calculations, check out the Methodology section below.

The Nerds strongly urge you to pay off your balance in full each month. Credit card interest rates are very high compared with other financing options, and you should spend your hard-earned money on enjoyable things and awesome experiences, not interest.

How to pay down your debt faster

If you’re dealing with credit card debt, you can eradicate it faster by paying it off in order of interest rate. And you can decrease the amount of interest you’ll have to pay by lowering the amount of debt outstanding or lowering the interest rate. Read on to learn more about your options.

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