Credit Card Debt, The American Way
If you are like nearly 47% of American households, you may have credit card debt outstanding. Think about that, nearly half of American households are carrying a balance on a credit card. This means big money for credit card companies and less money in your pocket due to interest payments.
While you may rationalize credit card debt as a way of life because so many others are in the same boat, just think about the other half of American households who can live a life of less worry and less stress. And based on what I’ve seen, your income level is not the main determinant of whether you will have credit card debt, your lifestyle is! If you fall into the 47% and want to get rid of your credit card debt for good, read on.
Steps to Financial Freedom
While the path to being debt free isn’t always easy, it is definitely worth it to get that debt paid off.
Step 1 in getting rid of your credit card debt is to figure out what your balance is and what interest rate you are paying on all of your credit cards.
Step 2 is to arrange the list so that the highest interest rate card is listed first, followed by the next highest and continue on down the list. This is the easy part.
The next step is to determine where you will come up with the money to start paying these balances down. You may be thinking that you don’t have any wiggle room left in your budget, but if you scrutinize your cash flow and reevaluate your priorities, you will likely find cash that can be redirected to paying down your debt.
In order to determine how much excess cash flow you have, you need to know how much money has to go out the door each month. This should be relatively easy to determine by going through your monthly bills. Include the minimum payments for each credit balance you have as well. The amount left over once you’ve paid all your fixed expenses is what you have left to cover your discretionary expenses (i.e., food, entertainment, gas, shopping, etc.) and to put towards your credit card debt.
But before you decide how much extra you want to allocate towards your credit card balances, I want you to write down things that you will be able to do once all that debt is paid off. Maybe you want to travel, or buy a new home, or just start saving more for your future.
Whatever it is, it has to be personal for you or you won’t be motivated to decrease your spending in other areas of your life. I would also suggest you write down how you will feel once the burden of this debt is behind you. Use sticky notes and place them in areas in your house that you pass by frequently as a constant reminder of what you are working towards. Another option is to create a vision board.
The “Debt Snow-Ball”
A popular approach to paying down debt is called the snow-ball effect where you put as much as possible towards the highest interest rate card and pay minimums on every other card. Once you pay off the first card, you take that payment you were making and add it to the next highest interest rate card. Depending on your balances, you might not see much progress right away, but it will pay off big time in the amount of interest you will save and in the amount of time it takes you to become credit debt free.
Saving for Your Future!
Once you’ve paid off your debt the final step is to start saving so that you don’t end up back where you started! Focus your spending on the things that are most important to you and try to do away with spending unintentionally. Instead redirect those funds into savings accounts to help you meet your future goals. Set up separate savings accounts and nickname them according to what you are saving for.
By following these steps, you should develop better spending habits and hopefully be rid of your credit card debt for good.
About the Author
Kelly Stanley, CFP®, MBA is a Financial Planner with Beverly Financial Group and is an Investment Advisor Representative offering securities and advisory services through Cetera Advisors LLC, member FINRA/SIPC. Cetera is under separate ownership from any other named entity.
Securities and Advisory Services are offered through Cetera Advisors LLC, member FINRA/SIPC. Cetera is under separate ownership from any other entity.