Carrying credit card debt has become something absolutely normal for many American citizens. The overall debt of American households has increased with 11% just for the past 10 years. Nowadays, the average American household has credit card debt of around $17,000. This is just the credit card debt average amount. The overall average debt amount for an American household is around $135,000 which includes mortgages. With debt constantly increasing, it could be a sign of bad budget management. But that may not be the only reason for people to go into debt. The truth is that there has been a tremendous growth in the costs for medical bills and housing costs, which makes it almost impossible for many American families to manage to pay their monthly bills without taking out a loan or going above their credit card limits. All of this, however, does that mean that there is no debt free hopes. By studying the problems and putting in real effort in planning your budget, you can go a long way and achieve financial freedom. Most importantly, sustain it for a very long period of time. It is important that before we start getting rid of our debt that we know exactly what we are dealing with.
Standard American household debt
|Total debt amount owed by average American household with the certain debt type||Total debt amount owed by United States citizens|
|Student loans||$50,000||$1.3 trillion|
|Auto loans||$29,000||$1.2 trillion|
|Credit card debt||$17,000||$780 billion|
|Any type of debt||$135,000||$12.6 trillion|
Why has debt increased so much?
The things are quite simple actually. In the past decade, the growth in the living costs has heavily outpaced the growth of people’s income.
How much debt do we actually carry?
It is expected that in the next year, the total debt amount will surpass the debt amount of the Great Recession.
What is the real cost of debt?
The average American household is currently paying a credit card debt interest of $1,300 each year.
Now that we know just how big of an issue credit card debt is, let’s dive into what exactly is credit card debt. Getting a better understanding of the problem will allow you to find a solution to it quickly and a lot easier.
What is credit card debt?
Credit card debt is an unsecured type of debt which people often start to carry by revolving loans. Technically, every purchase that you make by using your credit card creates debt. However, these debts normally have no interest, that is at least, until the expiration of the grace period. That means that people who pay their credit card balances on time each month should not be considered as people with credit card debt. People in credit card debt are those who continue carrying their credit card balances long after the grace period has already expired and therefore, their credit card debt starts to bear interest.
How bad is credit card debt?
Credit card debt is actually considered to be one of the worst debt types due to its extremely high interest rates. You can see many creditors encouraging their customers to make only minimal payments to their credit card debts, promoting them to be a sort of a long-term loan. This, however, is not something that financial experts would recommend. Instead, they often advise people to pay off their credit card debts as early as possible to regain control of their finances.
How to get out of credit card debt?
Paying off credit card debt is far from an easy task. However, with the right mindset, strategy, and determination, it can be quite achievable. We are now going to look at some ideas, tips and steps that can help you get rid of your credit card debt once and for all.
Do not make only minimum payments
As we have already mentioned above, most credit card companies will tell you that making minimum payments on your credit cards is the way to go. Yes, that would be great, but unfortunately not for you, but for them. By making only minimum payments towards your credit card debts, you are mostly paying only for the interest which does not really allow you to get any close to paying off the actual debt. Start making bigger monthly payments. This is the only way that you are going to see actual results. This is the way to not only pay the interest on your credit card debt, but to actually get rid of the credit card debt itself.
- If you are not quite sure how much more than the minimum payment you should make, just look at your last payment and see how much you have paid on interest. In order to make your payments more efficient, you would need to pay a bigger amount that what your interest is. That way you will be able to actually start paying off the real debt.
Organize your debt repayments
Even though it may seem like an obvious thing to do, many people are overlooking this step of their debt repayment process. In order to get rid of your credit card debt, you would need to start repaying your debts in a certain way. You should start with the debt with the highest interest rate. This is basically the debt that takes the most of your money, so it only makes sense to start off with that one. By paying off the debt with the highest interest rate first, you will not only be able to save money on interest along the way, you will also gain momentum and the confidence to continue paying off your debts until they are all gone. So once you are done with the highest interest rate debt, go on to the next one and keep that strategy going until you are free from debt.
Start tracking your spending
In order for you to be able to be on top of your credit card repayment bills each month, you would need to start planning your budget. Which means you would need to start tracking your expenses. Most people normally spend money on stuff they do not actually need without even realizing it. It can be anything from a new pair of shoes to a night out at a fancy restaurant. If you are serious about reaching financial freedom, you would need to make certain changes to your lifestyle. If that means that you should limit your overall spending, then that is exactly what you should do. Instead of eating out, try cooking some home meals. Instead of going out with friends, try inviting them over. Every little thing that you do towards repaying your credit card debts faster will pay off in the long run.