Interestingly, according to CardTrak 13% of Americans with credit card bills actually have a debt load that tops $25,000. While the difference between having nearly $10,000 in credit card debt versus $25,000 might seem like a big one, let me tell you that it's really not that far a leap to go from one big balance to the next once you get caught up in the cycle of debt.
I empathize with those of you who are in debt due to one of the five dreaded D's:
• Downsizing
• Divorce
• Death in the family
• Disability
• Disease
But let's be honest, sometimes it's not because of personal misfortune that we're in debt it's because of mismanagement. Here are some other ways that we put ourselves in the spiral of debt continuing to carry debt month after month and year after year.
First is not having a plan of how your are going to knock out your debt—a written explicit plan. Often when we have debt to pay we'll say we'll worry about it later or we'll tackle the problem later when we come into some money. The problem is that someday never seems to come. Or even if you do "come into some money" a whole bunch of other financial obligations are staring you in the face.
The second reason Americas have debt is that we mismanage credit. There's no reason to whip out your credit card to pay for a Big Mac, fries, vanilla shake and an apple pie. You know you should just give that cashier a $10 bill take your $2.50 in change so you don't end up paying 18% more for that fast food.
By the same token why did you charge your federal tax bill? That $1,800 that you owed to the IRS should have come out of your cash reserves if you were managing your finances the right way. But you charged it talking about that you wanted to get the points. Don't you realize that the value of what you get off those points are only worth one percent of what you charged? Even though you have to pay a 2.49% "processing fee" just for the privilege of using plastic to pay your IRS bill that makes no financial sense whatsoever.
A third reason so many people are in debt simply put is because you are living above your means. Stop trying to bling, stop trying to have the latest shoes on your feet, designer clothes on your back and the newest model luxury car that you can't afford anyway.
Instead be content with what you can realistically afford knowing that you won't have to sweat about paying off some depreciating asset for the next five years.
Finally, for those of you who are in debt because you are using your credit card to pay basic living expenses things like food utilities, gas for your car etc—you need to reorganize your finances and learn how to properly budget. I understand it can be difficult to make financial ends meet. But by whipping out your credit card every time you need to fill up your gas tank—all you're doing is putting yourself deeper in the hole.
Let's get smart about how we're managing our money and handling our debt. It's a shame that Americans have a collective $850 billion in credit card debt and only about 18% of that gets paid off each month. The rest of the debt racks up interest charges month after month, which is why the average household in the U.S. pays about $1,500 in interest on credit card bills. We can do better than this we have to.
2 comments:
I have zero cc debt. So I don't live above my means. The secret is that I do not own a credit cards. My mortgage and student loans are enough debt!
Excellent advise! Without a plan for debt management and repyament, it can be very easy to lose control. Credit card companies continue to lure us into carrying balances with rebate offers, etc. Credit cards should be used not as a supplement for cash, but as a replacement for cash. Some old truths never change, like if you don't have the money NOW, you can't afford it later.
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