The Bargain Radar Facts!
- Nearly half of all Americans have some amount of credit card debt!
- Of those with credit card debt, the average amount owed is around $5,700 for every household, totaling nearly $4 trillion in total. WOW! That is nearly the same as the GDP of the entire German nation.
- The 45-54 age group has the most debt per person, at over $9,000.
- Men far outstrip Women in average debt, $7,400 to $5,245.
People often do not attribute credit card debt to anything but a cost of living. Interests rate on credit cards are far in excess of most other forms of borrowing. The costs and fees charged every month often equal out and people just pay a ‘fee’ each month to maintain their balance of overall debt.
As an example of this, if you take the average household debt of $5,700 – taking into account the average interest rate across all credit cards – and the fact is that if you paid $100 a month towards your $5,700 balance, it could take more than 9 years to pay off your debt in total! And you could actually end up paying MORE in interest than your total balance.
All this goes to the importance of identifying and understanding yourself that credit card debt is amongst the most expensive debt to maintain and escape from. It should be targeted as a priority when you are trying to address your overall financial health. If you could afford to pay over $500 a month instead of the $100, you could see your balance clear in just over a year.
If making higher monthly payments is not an option for you, you could investigate Debt Consolidation or Personal Loans as a better option for you. The benefits and savings in terms of interest rates and – more importantly – the SAVED interest rates you will avoid by clearing your credit card balances faster, can make these options attractive and very smart financial moves.
There are different trains of thought in terms of how to prioritize your credit card debts if you do not want to go down the consolidation or loan avenue. If you want can’t afford to add a significant amount to your monthly payment, there are two other main ways to approach your monthly payments:
- Do you want to prioritize the balance with the highest APR/rate of interest. Reasoning here is that this card is costing you the most and will take higher payments to clear, as your net payment OFF the balance is less for the same monthly payment amount. To make that clear, if you have two credit cards, both with a balance of $2,000 and you are paying $100 a month on each, if one has an APR of 30% and one of 20%, your $100 payment will have a bigger impact on lowering your overall balance of the account with 20% APR, so logically it makes sense to pay off the 30% APR balance quicker. This way you will save a significant amount more in the long term.
- Alternatively, do you start with your lowest overall balance and pay that off, then move onto the next? The thought behind this is that you will get real motivation and a feeling of success in clearing a credit card balance completely from your overall debt. So, the process here is to pay the minimum amount due on all other balances and pay the extra money you can afford on the smallest balance. Once you have paid off that balance in its entirety, then transfer the monthly payment you have been making to the lowest balance to the next-lowest balance and so on.
Both these options can and have worked for many people – it’s really about choosing what works better for you. If you want to read more our other tips on ways to clear your debts here, and some advice on how to raise your credit score here.