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50% Of Americans Have Maxed Out Credit Cards, Here’s How To Dig Yourself Out Of Credit Card Debt

Adding a Visa card into Apple Pay digital wallet.

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America’s love affair with credit card debt is well documented. Yesterday’s announcement of the Apple Card is a perfect example.

Unsurprisingly, total U.S. credit card debt reached an all-time high of $870 billion at the end of 2018, according to the latest data reported by the Federal Reserve Bank of New York.

These levels beat the previous record which was set in late 2008, which was at the height of the 2008 financial crisis. In the last three months of 2018 alone, Americans added $26 billion worth of credit card debt as consumers ramped up spending to gear up for the end of year holiday season.

Pair this with the fact that the number of credit cards in circulation is at a level not seen since 2008 and predicting which way the data is heading becomes simple.

The ballooning of credit card debt by itself isn’t necessarily a scary statistic, but new survey data by financial advisory site, The Motley Fool, shows that nearly 1 in 5 respondents were dependent on their credit cards to pay for basic living expenses.

Credit card interest rates typically range from 15 to 25 percent, which means it can quickly become punishing on an already dire financial situation. Paying credit card interest on basic living expenses like food and clothing only makes it harder to live within your means, and is shifting from a tax on the poor to a tax on the middle class.

As the hole becomes deeper and monthly payments grow, consumers often have to turn to additional credit card debt to make ends meet. It’s no surprise that half of the survey respondents had maxed out a credit card, and that 23% planned to open a new credit card within the next year.

It’s easy to see how credit card debt can quickly spiral out of control. What’s more difficult to see is a way out. If you find yourself racking up credit card and aren’t sure how to get started, there are a few steps you can take to begin to change the situation.

Dig Yourself Out Of Credit Card Debt

Begin by writing down all of your debts in a single place. With the average person owing money on more than one card, you’d be surprised how often they aren’t able to say how much they owe in total. You need to understand what you are up against if you want to create a plan to beat it.

The second thing you’ll want to do is to try to make at least the minimum payments on all your cards every month. This will keep you from becoming delinquent on your accounts and avoiding having them being sent to collections.

This is important because making on-time payments is the most important factor that goes into calculating your credit score. Keeping a high credit score will allow you to get better financing terms so you’ll pay less money over time. If you don’t plan to ever have or use credit cards after you pay them off, just remember that your credit score will still be used by lenders when you’re ready to buy a house. A 0.25% difference in interest rates may seem small, but on a $200,000 mortgage it will make a big difference.

Once you have your credit accounts in good standing, you’ll want start to budget your money.

Many people shudder at the thought of having to budget, but remember that it doesn’t have to be complicated. It’s simply a plan for how you’ll make and spend your money on a monthly basis. An analogy that I like to use is that you wouldn’t want to go on a road trip from California to New York without a map or a plan. Without a map, who knows where you’d end up. The same thing applies to your money and the way you spend it. If you don’t have a plan, you won’t know where you’ll end up financially. More often than not, it won’t be where you’d hope to be.

And just like a road trip, paying off credit card debt takes time. There isn’t an easy substitute or a quick scheme to pay it off other than earning more money and prioritizing paying it off over other expenses. A successful financial journey is the culmination of countless of small decisions that compound over years. The same is true for those who spend their lives living paycheck to paycheck.

Just remember that if you’re on a long drive somewhere, it’s not just about the final destination, which in this case is having no credit card debt. Try to enjoy the journey itself because at the end of the day, it’s those memories that will stay with you forever.

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