80% of American adults are in debt and half of them own a credit card. The average credit card debt for a household that has a credit card is $8,284.00.
For many people, a credit card is the greatest obstacle to obtaining a sound financial future, and it can keep them from becoming financially independent. Debt is a sweeping crisis perpetuated by our society. Frequent use of credit cards has led Americans astray because it offers “instant gratification” that satisfies the immediate desires of our generations and the effects of using them can hang round for years.
How do I get out of Debt?
Suckers buy lottery tickets, hoping they win enough to erase their debt. Not a good plan. A person who buys lottery tickets could be using that money toward paying off debt. Fools wait for a miracle, wishing for someone to show up at their door with a big check. This usually doesn’t happen. People who know how money really works will take responsibility and face their debt head on. Those people have determination, focus, accountability, and a sound strategy to make it happen.
Consider this strategy:
First, know what you owe. Make a list of all your credit card debts and loans. Write down your outstanding balances, interest rates, monthly payments, and monthly due date for each of them. At least once a year, pull your credit report from a FREE online service. Analyze it for accuracy. Most importantly, don’t forget to report errors and discrepancies so incorrect information can be corrected.
Second, set a goal. Most people don’t like thinking about their debt because it can be depressing. However, with some planning it can become easier. After considering your budget and card balance, decide when you want to have everything paid off and track your progress. Make sure it’s attainable within the timeframe you set. Having a sense of accomplishment each month helps motivate you to settle your debt.
Third, pay more than the minimum due. With a big balance, it may seem like the credit card company is doing you a favor by letting you pay a reasonable, minimum payment. However, when you pay only the minimum payment each month, interest adds up because only a small fraction of the amount you pay goes toward your principal, most of your payment goes toward the interest.
Fourth, no more late payments. This is critical for a good strategy. Paying after your bill’s due date hurts your credit score and in turn will generate late fees. To stop late payments, sign up for automatic payments or set alarms on your phone so you’re never late again.
Fifth, target one debt at a time. If you have balances on multiple credit cards, pay down the total balance . . . one card at a time. Pay off the card with the smallest balance or the highest interest rate first. Whichever one you target, pay more than the minimum or as much as possible within your budget. After reaching a zero balance on the first one, start on the next smallest balance or next card with highest interest rate. Include in your payment on that card the amount of monthly payment you were paying on the card that you just finished paying off. Continue that strategy as you pay off each bill, and you’ll see balances reduced quicker. Repeat this process until you are credit card, “debt-free”.
Finally, tap into lower interest rates. You can trade the high interest rates of many credit cards for the more manageable rates of a personal loan. This may or may not be a good strategy for you. Here’s why. You will still have to pay interest, but more of your payment can go towards reducing the principal. A word of caution though. Be careful with this strategy so your new loan doesn’t throw you deeper into debt.