According to a recent study,* Americans were carrying revolving credit card balances worth over $488.66 billion in March of 2023. The average balance on those cards was $7,876. With interest costs added in, it can be hard to pull yourself out of a cycle of recurring debt.
Too much debt can really be a burden on your finances and can prevent you from reaching your goals. Are you in deeper than you thought? Here are some signs that your debt level may be too high.
- You don’t know, and don’t want to know, how much you owe.
- You borrow for things you once paid for in cash.
- You have to juggle other bills just to pay the minimum charges on your credit cards each month.
- Each monthly credit balance is higher than the last.
- You pay bills using money intended for other needs.
- Creditors are sending overdue notices.
- Your savings or emergency funds are not enough to cover three months of living expenses.
If even one of these scenarios applies to you, you may be in too deep. How can you start digging your way out of debt?
Evaluate Your Credit Card Debt
Do you owe money on multiple credit cards? Do you know the interest rate on each card? Do you only pay the minimum amount on your balance each month? These are good questions to ask when you’re looking for ways to lower your credit card debt.
Strategize Paying Your Debt Off
First, review your statements to see how much you owe and what the interest rate is. Then, get a total amount owed on all your cards. It may be a good idea to pay off the card with the highest interest rate first (while keeping current with the others, of course). When one card is paid off, start paying off the one with the next highest interest rate. Try to pay more than the minimum balances each month; you’ll pay off the balances a lot sooner while paying less interest than if you just pay the minimum amounts. Also, don’t use your cards while you’re paying down the debt. The more you can pay without accruing more interest, the better.
Another strategy is to contact your credit card companies to see if they’d consider lowering your interest rate, which they may be willing to do if you have a good credit rating and pay your bill on time. You may also be able to transfer your balance to a card with a lower interest rate. But, be sure to read the fine print; sometimes there are transfer fees and other charges that make the change not worth it.
The next step is to put together a budget so you can see where your money is going. Start by writing down your income, followed by your expenses. You’ll see the necessities, like your mortgage payment or rent and food. But, how much are you spending on entertainment? Dining out? Having a budget in writing can help you see where you’re spending money “wants” so you can put at least some of it toward paying off your debt instead. Additionally, using cash instead of a credit card may help you slow down and reconsider making expensive and possibly unnecessary purchases.
Consider Your Other Types of Debt
If you have a mortgage or an auto loan, you are carrying what is called installment debt, meaning you pay a portion of the total due at regular intervals over a given period of time. Installment debt helps us to get what we need when we need it. Similarly, school loans and small business loans can be a valuable investment in your future. Nonetheless, you should avoid taking on more debt than you can handle.
Don’t Forget to Save
While it may seem impossible to do at the same time as paying down your debt, try to add to your savings as well. You’ll want to have some money set aside for unexpected expenses so you won’t have to use your credit card, starting the cycle of debt all over again.
The financial professionals at Emerj360 are experienced in creating personalized financial plans. If you’re ready to optimize your finances and create a financial plan tailored to your unique situation and goals, contact us at 1-833-637-5360 or schedule an appointment using our online form.
Source:
American Household Credit Card Debt Study, www.nerdwallet.com, January 10, 2023
