For middle America, the same is true for credit card debt. Now I'm not saying that there is never a time to have credit card debit. But there is never a time to have credit card debt. I can understand and even sympathize with hard times, but today I want to look at your options and some alternatives. When most credit cards are charging 10%-20% in interest and fees, its vital that we limit those expenses to a minimum. If you look at this issue on a national scale, the U.S. is paying $500 BILLION a year on just their interest payments. AND RATES FOR THE GOVERNMENT ARE AT AN ALL TIME LOW!!! That's not the case for credit card debt.
One of the clearest, most upfront solutions is cut the CRAP out of your life. If you have credit card debt, this means one of two things.
1. Your financial situation is facing very very hard times. Or more likely
2. You are living beyond your means
The keeping up with Jones's syndrome runs wild in developed countries. What you pay to live today, costs you a FORTUNE in tomorrow's terms. Here are just a few credit card facts:
"There are 185 million bank credit card cardholders and about 75% of
U.S. households have a bank credit card.
● Americans have an average of 7 credit cards each (4 bank and 3 retail)
and charged an average of $8,238 during 2003.
● 44 million cardholders, about 24%, struggle to send the minimum
monthly payment.
● The average outstanding credit card balance is now over $12,000
[SOURCE: Dr. Robert D. Manning testimony to the U.S. Senate Committee on Banking
Housing and Urban Affairs, May 2005.]"
An average credit card, where just the minimum payment due is paid can take nearly 20 years to pay off the principal balance. Additionally, you are digging yourself a bigger hole, because the money you spend on interest payments could have been extra cash in you cash flow that could have been helping you AVOID debt in the first place.
There are ways to pay off your credit card balances faster. First think about doing a transfer balance. I'm not a big fan of jumping from card to card, but if all you need is a couple of weeks to pay off the balance than this might be a good way to avoid some interest charges. Additionally, many credit cards reward a transfer balance with rewards points/cash back/low introductory rates.
More importantly, it is hard to believe that you will have any other debt that would have higher rates than a credit car. So if you have a home or car loan, DO NOT pay extra cash on these items first. ANY and I mean ANY additional cash you have should first go to paying off the credit card balance.
A lot about paying credit cards is merely managing the timing of things, so here are some tricks:
1. If you have an IRA retirement fund, you can take sixty days to transfer it from one account to another. If you can close one account, use part of the IRA to pay down credit card balances and then FULLY fund your next IRA within six months you will pay no fees. Another thing to think about is most retirement funds you will have to pay tax penalties on if you withdraw early. But those penalties are usually capped at 10%. It's a lot cheaper to pay a 10% penalty and pay off that credit card debt with an 18% rate. You can also take loans out against your 401k. While a little trickier, if successful, you are paying yourself a market rate. The interest you pay on that loan is to yourself! So pay off those cards and keep the money in house.
2. Change your tax withholdings at work to a lower amount. This will increase your take home pay from your paycheck which you them can apply to paying off your debts. You WILL have to pay taxes on this at the end of the year like normal, but at least you have avoid interest payments on that amount for up to 12 months.
3. Consider increasing debt in other areas (such as a Home Equity Line of Credit) to pay the high rate credit card debt. This is harder to do these days, but its all just offsetting one expense with another, so choose to pay off the higher interest rate debt first.
The true key to avoiding credit card debt is simply to maitain a sustainable budget and to not overspend your income. Think about this:
If you have $1,000 in credit card debt, you could be paying about $150 a year JUST IN INTEREST. Year after year after year, that ads up and that's just $1,000. Think about what we read earlier, that average balance is about $12,000. Thats approximately $1,800 a year JUST IN INTEREST.
Do yourself a long term favor and do whatever it takes to pay off those credit cards as fast as you can. Once you've done that, don't feel like you have to throw the cards away, they are great for building your credit which can save you money when buying a house or car. But be proactive and pay in full the entire balance and avoid carrying any monthly amounts that can be hit with the high interest rates.
Sincerely,
Coco
An average credit card, where just the minimum payment due is paid can take nearly 20 years to pay off the principal balance. Additionally, you are digging yourself a bigger hole, because the money you spend on interest payments could have been extra cash in you cash flow that could have been helping you AVOID debt in the first place.
There are ways to pay off your credit card balances faster. First think about doing a transfer balance. I'm not a big fan of jumping from card to card, but if all you need is a couple of weeks to pay off the balance than this might be a good way to avoid some interest charges. Additionally, many credit cards reward a transfer balance with rewards points/cash back/low introductory rates.
More importantly, it is hard to believe that you will have any other debt that would have higher rates than a credit car. So if you have a home or car loan, DO NOT pay extra cash on these items first. ANY and I mean ANY additional cash you have should first go to paying off the credit card balance.
A lot about paying credit cards is merely managing the timing of things, so here are some tricks:
1. If you have an IRA retirement fund, you can take sixty days to transfer it from one account to another. If you can close one account, use part of the IRA to pay down credit card balances and then FULLY fund your next IRA within six months you will pay no fees. Another thing to think about is most retirement funds you will have to pay tax penalties on if you withdraw early. But those penalties are usually capped at 10%. It's a lot cheaper to pay a 10% penalty and pay off that credit card debt with an 18% rate. You can also take loans out against your 401k. While a little trickier, if successful, you are paying yourself a market rate. The interest you pay on that loan is to yourself! So pay off those cards and keep the money in house.
2. Change your tax withholdings at work to a lower amount. This will increase your take home pay from your paycheck which you them can apply to paying off your debts. You WILL have to pay taxes on this at the end of the year like normal, but at least you have avoid interest payments on that amount for up to 12 months.
3. Consider increasing debt in other areas (such as a Home Equity Line of Credit) to pay the high rate credit card debt. This is harder to do these days, but its all just offsetting one expense with another, so choose to pay off the higher interest rate debt first.
The true key to avoiding credit card debt is simply to maitain a sustainable budget and to not overspend your income. Think about this:
If you have $1,000 in credit card debt, you could be paying about $150 a year JUST IN INTEREST. Year after year after year, that ads up and that's just $1,000. Think about what we read earlier, that average balance is about $12,000. Thats approximately $1,800 a year JUST IN INTEREST.
Do yourself a long term favor and do whatever it takes to pay off those credit cards as fast as you can. Once you've done that, don't feel like you have to throw the cards away, they are great for building your credit which can save you money when buying a house or car. But be proactive and pay in full the entire balance and avoid carrying any monthly amounts that can be hit with the high interest rates.
Sincerely,
Coco
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