View time: 2:53 min
Transcript
Debt is a part of life for many people in the U.S. In fact, in 2021, the average person was more than $96,000 in debt, with over $5,000 of that in credit card debt.*
But there’s hope! Tackling your debt—including your credit cards—can be within reach. And there are many ways to get started.
But there’s hope! Tackling your debt—including your credit cards—can be within reach. And there are many ways to get started.
Let’s talk about a few:
- Track your spending. This will help you find ways to cut costs. Then you can put that extra money toward paying off your debt.
- Get a credit report. A credit report will give you a more detailed breakdown of all your credit activity, including the total amount you owe and the types of credit you use. You can request a free credit report online from each of the 3 credit reporting companies once a year.
Make sure to check your report. If you find any errors, get them corrected. A mistake on your report could lower your credit score and affect your ability to get lower interest rates on credit cards and loans.
- Be sure you're making all your minimum monthly payments. Missing a payment can add to your outstanding balance, put you at risk for late fees and penalties, and even lower your credit score—sometimes by more than 50 points for a single missed payment.** To make sure you pay your minimums in full and on time, consider setting up automatic payments.
- Choose a debt paydown strategy. There are lots of different strategies you can use.
If you’re looking to save the most money in the long run, try the avalanche method.
Here’s how it works: Pay the minimum on all your debts each month. Then put a little extra toward your debt with the highest interest rate. Once that balance is paid off, put the money you were paying—the minimum plus the little extra—toward your debt with the next highest interest rate. Keep going until you’re out of debt.
Another popular strategy is the snowball method.
Here’s how it works: Pay the minimum on all your debts each month. Then put a little extra money toward the debt with the lowest balance. Once that debt is paid off, put the amount you were paying—the minimum plus a little extra—toward the debt with the next lowest balance and continue the process. You’ll accelerate how quickly you cross debts off your list and feel good about your progress.
You can do this!
No matter what you’re facing, you can get out of debt.
Remember: Making small changes now can lead to big rewards in the end. Don’t forget to celebrate your wins along the way!
Remember: Making small changes now can lead to big rewards in the end. Don’t forget to celebrate your wins along the way!
The legal details
Whenever you invest, there’s a chance you could lose the money.
*Experian. Average Credit Score Hits New High, While Debt Balances Rise. 2022.
**FICO. FICO Consumer Credit Activity Infographic. 2019.
Vanguard does not provide tax advice and we recommend that you consult a tax or financial advisor about your individual situation.