Can Grief Become a Disability?
Credit card debt is a painful reality that more and more American families are living with. According to ValuePenguin, the average credit card debt for American households that carried a balance in 2017 was a massive $16,048. The 2017 American Household Credit Card Debt Study by personal finance website NerdWallet came to a similar conclusion, showing an average of $15,654 per balance-carrying household — with a worrying new trend of families increasingly using their credit cards to pay for medical costs.
The best way to deal with credit card debt is to take action. Rather than allowing the interest to accumulate, take a clear look at your situation and plot a strategy to firmer financial ground. Here are five steps to help you move in the right direction:
Take a Clear-Eyed Look at the Debt
Begin by taking stock of exactly where you are. What do you owe on each card and what are the interest rates? Write your numbers down on a piece of paper or type them into a spreadsheet. If you have more than one card, rank the debts according to the interest rates — so you can clearly identify which cards are costing you the most over the long-term.
Know Your Spending Habits
Now study your credit card statements in more detail. Run them by your budget. Analyze your habits over the past year. It’s all too easy to use a card and forget about all the small purchases that can add up. If you’re living above your means, you need to know this now so you can course correct and bring down your spending.
Get Better Rates
Call your bank to find out whether you can negotiate a better interest rate on a card. If you’ve been making your payments on time and have a solid credit score, you’ll have more bargaining power. You may need to have the primary cardholder around to join the call — and note that the conversation could take some time.
Build Your Plan
There are two major strategies when it comes to paying off credit card debt:
- The Debt Avalanche: This is where you focus on paying off the card with the highest interest rate first. You continue to make minimum payments on the other cards, but focus your energies — and cash — on eliminating the highest-cost card first.
- The Debt Snowball: This is a different strategy entirely, where you focus on paying off the smallest debt first, while making minimum payments on the others. Just as the name suggests, it starts out small but as you wipe out each debt, that money then gets transferred over to paying the larger debts.
There has been much debate about which strategy is best. The math suggests that the debt avalanche is the winner, however the psychological boost of wiping out debt in the snowball method can be highly motivating. Depending on the degree of your debt, there are other options such as consolidating debt where you roll all your debt into one. You can also transfer your debt to a new credit card that has zero percent APR. Bear in mind that this approach generally works best for those with good credit scores, and it does require the discipline to not overspend. The Motley Fool recently compiled the best cards of 2018. Choose a strategy that works for you, then stick with it.
Grow New Habits
As you move ahead, build new habits. If you’re an impulse buyer, consider physically taking the cards out of your wallet and leaving them at home. You can also experiment with increasing the regularity of your payments. If your budget allows, try shifting payments from monthly to more frequent increments such as weekly. When you completely eliminate that debt, you can then start a practice of paying off all credit card purchases at the end of every month.
It’s all about living within your means — and taking back control. As Rod Griffin, director of public education at Experian recently told CNBC, good credit card management boils down to making payments on time and not buying things you otherwise can’t afford. “Ride the wave, don’t fall off the surfboard,” he said. “That’s the trick.”
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