Is It Advisable to Erase Credit Card Debt?

Americans owed almost $1 trillion in credit card debt in 2009, according to Suze Orman of MSNBC. If you have credit card debt, it is usually advisable to pay it off before other, larger debts. In certain cases, you could lose money through opportunity cost by paying off a credit card.

Identification

Credit cards usually have some of the highest interest rates among forms of debt---the average line charges 14.9 annual percent rate. Consumers save more money by paying off their debt with the highest APR rather than the highest balance, according to BankRate. This has the added benefit of raising your credit score by reducing credit usage---the ratio of your debt used to the total amount of credit available.

Considerations

It is possible that putting extra income into a retirement or savings plan could earn more money in the long run than paying down credit card debt. If, for instance, you have a credit card with a very low interest rate---usually 9 percent APR or lower---a savings account like an IRA could bring a higher retirement fund. This is especially true if you have a 0 percent APR teaser rate. If you are on a teaser rate, be prepared to pay off the balance after this promotion ends.

Potential

After the 2008 credit crisis, banks are timid about lending too much to customers. Carrying large amounts of credit card debt could trigger a red flag and the bank might lower your credit limit. This, in turn, will damage your credit by boosting your credit utilization. As a result, they may raise your interest rate.

Tips for Reducing Credit Card Debt

If you do not already, plan out your budget. Consumers cut spending about 20 percent when they see their monthly purchases in writing, according to BankRate. Then calculate how much you can pay down on your credit cards each month in excess of the minimum. You can save more on interest by making multiple payments each week so interest does not accrue on your balance for the entire month, but review your bank's provisions on making "micorpayments"---some charge fees for making too many payments, according to ABC News.