Couple researching online to manage their credit card debt

Credit card debt. It can become the dirty secret you withhold from your friends, family, partner, or even yourself. But the more you ignore it, the worse it could get.

If you’ve got a lot of credit card debt, you’re not alone. A recent report by the National Foundation for Credit Counseling found that 43 percent of Americans carry credit card debt from month to month. Nearly 6 in 10 admit that it is difficult to minimize their debt, primarily due to unexpected financial emergencies. According to several studies, Americans are, on the whole, more embarrassed about credit card debt than anything else. Researchers have even found a connection between debt and depression.

You don’t have to feel bad about your high balances. Instead, take action. Follow these five steps to reduce your credit card debt and you could improve not just your credit health but also your emotional well-being.

Five steps to get out of credit card debt

The first step may be the most difficult one to take. That’s why we’ve outlined some simple actions you can use to rein in your high credit card debt. Once you’ve take that initial step, you’ll build momentum toward your goals.

Step 1: Take an honest look at what you owe

You may have heard financial experts recommend that you should get out of credit card debt to start getting better with money. To do that, you have to understand how much you owe and know what the interest rates are on each card. This will help you gauge what your debt is costing you.

For example: Let’s say you have a $15,000 balance on a credit card with an interest rate of 15%. You pay $359 toward that debt each month, slightly more than the minimum payment required. Your total interest charges would be $6,349 by the time you paid off your $15,000 of credit card debt. And that assumes you didn’t make any new purchases. And, it would take you 35 years to be debt-free.

In the above scenario, you’d shell out $21,349 to pay off that debt—paying more than 30 percent more than your original balance. There are definitely better options for getting out of debt.

Step 2: Create a budget and stick to it

It can be daunting to make a list of everything you spend each month. It’s also important—having a picture of what you spend will show you where you might easily cut back. Maybe you didn’t realize that your morning coffee run adds up to $50 a month or you’ve forgotten about a free trial that expired or you haven’t used your gym membership in a long time. Comparing your expenses to your earnings will help you improve your spending habits.

Once you’ve done this:

  • Make your budget. There are a lot of different approaches to budgeting. Start simple—create buckets for your obligatory expenses (housing, transportation, food, etc.) and your optional ones (restaurants, gym). See where you can cut back. Do you really need cable? Can you renegotiate your cell phone bill?
  • Avoid making new purchases on your card. You want to avoid adding to your balance so that you don’t increase what you’re paying in interest. This is especially critical as you try to rein in credit card debt.

Budgeting allows you to assess your expenses. Once you’ve done that, you can free up extra cash which could help you get out of credit card debt faster. You can also set up savings for an emergency fund so that you don’t have to borrow more when unexpected expenses hit.

Step 3: Explore a variety of options to reduce your debt

It’s time to identify concrete steps to pay down that higher interest credit card debt. Following are some ideas, but you’ll need to determine which, if any work for you:

  • Increase the amount you pay each month. The upside: You’ll pay off your credit card debt sooner which means you’ll pay less in total interest. What’s the downside? You’ll be paying more every month and a bigger bill might feel tight in your monthly budget.
  • Call the credit card company to negotiate a better interest rate, saving you some cash and possibly helping you pay it down faster. Be prepared: Depending on your personal situation, this could be straightforward, or quite frustrating. But it’s worth exploring.
  • Look into a balance transfer, which means you pay off one credit card with one that has a lower interest rate. The upside: You’ll save on interest charges, assuming you don’t add more debt, of course. What’s the downside? Many balance transfer offers have an up-front fee or an annual fee that could reduce the money you save with a lower interest rate. Additionally, those very low or 0% APR introductory rates expire and are often replaced by higher standard rates.

While these are simple actions, all of them have one big drawback: They keep you tied to revolving debt which means that each time you make a purchase on the credit card, you add to your balance and to the amount you pay in interest.

Step 4: Consider consolidating your debt with a personal loan.

There are some big upsides to using a personal loan for debt consolidation:

  • You can lock in a fixed rate (one that doesn’t rise) and fixed monthly payment (one that doesn’t change month-to-month).
  • You pay one lender. Using a single personal loan to consolidate multiple debts helps you simplify your monthly bill paying.
  • Because it is an installment loan, you’ll pay it back over a specific period of time with a set number of scheduled payments. Imagine circling the date on the calendar when you’ll have that debt paid off!
  • You could immediately save money in interest every month if you get a personal loan with a fixed interest rate that is lower than your credit card interest rate.

Is there a downside? Some personal loans have fees up front, such as application and closing fees. Some may also have prepayment penalties if you pay off the loan early.

Once you decide on a personal loan for debt consolidation, you’ll want to comparison shop for personal loans like you would for any major purchase.

Review and compare these five factors:

  1. Interest rate. Ideally, you want a rate that’s lower than what you’re paying currently on your highest credit card debt. Keep in mind that some lenders may offer low rates but have high fees.
  2. Fixed payment. A fixed rate (instead of a variable rate) means you’ll have the same payment every month. This makes monthly bill-paying easier.
  3. A choice in loan length (“term”), such as 36 – 84 months. That way, you can set up your personal loan to have a monthly payment amount that works with your budget.
  4. Fees vs. no fees. Steer clear of loans that have added costs like application, origination or closing fees.
  5. Prepayment penalty. Make sure there’s no prepayment penalty so you’re able to pay off your loan any time you like, without a fee for paying it off early. Discover Personal Loans, for example, does not charge any of the fees mentioned or have a prepayment penalty.

The bottom line here? You want to gain more budget control while paying down your higher-interest credit card debt. Need more convincing? Use our debt consolidation calculator to see how much you could save in interest.

Step 5: Keep up the good work

Once you’ve put the effort into erasing your high-interest credit card debt, maintain your momentum by keeping an eye on your balances, increasing your savings, checking your credit report annually and sticking to your budget. Treat yourself with an occasional splurge. You’ve earned it.

Take the first step toward paying off your credit card debt today with a Discover personal loan. Check Your Rate