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The average American household has more than $15,000 of credit card debt and pays more than $2,600 in interest on that balance1. That doesn’t even count car, student, and home loans.

Even if your numbers aren’t quite so high, reducing your debt load is always a smart financial move. But how do you stretch your paycheck when you have so many other financial responsibilities — from groceries and car care, to college and retirement savings? The five steps below can help you take control.

1: Create a budget.

One reason people land in debt is because they don’t track their expenses compared to their income and wind up spending more than they earn. A budget can help prevent this problem.

2: Find extra money.

Once you have a budget, review it to find at least three areas where you can reduce costs, freeing funds for debt payments. Could you minimize your cable channels, eat out less each week, or adjust your thermostat to cut your utility bill?

Another way to bolster your debt payments: Use existing savings or temporarily divert funds you’d normally send to savings. As long as you’re paying more in interest than you’re earning, this move probably makes sense.

3: Know what you owe.

Many people don’t actually know their total debt balance, which can lead to a false sense of security. So round up the most recent statements from all of your credit cards and loans. For each, note your balance and the interest rate.

4: Consider debt consolidation.

Do you owe on more than one credit card and expect it will take more than a few months to pay them off? You may able to reduce interest charges (so more of your payment goes toward principle) by rolling it all into a single card with a lower interest rate.

  • Try the KeyBank Latitude Credit Card1 to manage debt with a lower interest rate and a special low introductory APR of 0% for the first 15 billing cycles on purchases and balance transfers. The rater after the introductory period is 10.24% to 20.24% based on credit worthiness.

You could also consolidate your debt into a home equity loan, which may offer both lower interest rates and offer tax deductions. (Consult your tax advisor for details.)

5: Pay them off!

If you’ve consolidated your debt into a single card or loan, apply as much of your discretionary income as possible to paying off your balances. Try to pay more than the minimum amount due each month.

If you’ve decided not to consolidate, then put your debts in order from highest to lowest interest rate and apply the “snowballing” strategy: Make larger payments toward the debt with the highest rate. Once it’s gone, add the payment to what you’ve been applying to the card with the next highest interest rate. Repeat the process until you’ve eliminated all of your balances.

Make It Last

Unfortunately, it can be far too easy to continue racking up your debt or to run up your balances again once you’ve paid them off. To prevent this pitfall, put your cards away for a while. (Some experts suggest literally freezing them in ice!) Not only will you remove temptation, but you’ll also learn to live without your credit cards and within your budget. And that’s a winning financial strategy all the way around!

SOURCES: 1 “2015 American Household Credit Card Debt Study,” Erin El Issa, NerdWallet, https://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/, June 3, 2016

Additional sources:

“8 Steps to Reducing Credit Card Debt,” Erin Peterson, CreditCards.com, http://www.creditcards.com/credit-card-news/help/8-steps-cut-credit-card-debt-6000.php, accessed May 31, 2016

“9 Ways to Pay Off Debt,” The Motley Fool, http://www.fool.com/personal-finance/credit/9-ways-to-pay-off-debt.aspx, accessed May 31, 2016

“The Smartest and Dumbest Ways to Pay Off Credit Card Debt: 8 Essential Tips,” Kristin Colella, MainStreet.com, posted Dec. 8, 2014, accessed May 31, 2016

1 The 0% Introductory APR for 15 billing cycles applies to all purchases, as well as all balance transfers made within 60 days after account opening. Thereafter, the APR may vary and as of 7/23/2016 is 10.24%-20.24%, based on credit worthiness. The Introductory APR does not apply to cash advances. The variable APR for cash advances as of 7/23/2016 is 24.24%. There is a balance transfer fee of 4% of the amount of each balance transfer (minimum $10). There is a cash advance fee of 4% of the amount of each balance transfer (minimum $10). The convenience check advance fee is 4% of the amount of each balance transfer (minimum $10). A foreign transaction fee of 3% of the amount of each foreign transaction after its conversion into U.S. dollars applies. If you make a late payment, we may end your intro APR and begin charging you the higher APR that is scheduled to take effect after the intro APR is no longer effective.

This material is presented for informational purposes only and should not be construed as individual tax or financial advice. KeyBank does not provide legal advice.

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