Whether you lean on your credit cards to help pay the bills, or you’re collecting air miles by transferring credit card debt to a new card with an irresistible promotion, all Americans experience the attraction and the pain of counting card balances.
According to a recent study from Wallet Hub, our combined credit card debt just hit a major milestone: it crossed the $1 Trillion mark for the first time in history.
Currently, the average household carries $8,600 in credit card debt, a 6% increase from reports of the fourth quarter in 2016. These numbers are important to us now because it signals that Americans have settled back into a trend we established prior to the 2008 Recession.
In the fourth quarter of 2008, the average household credit card debt was $11,248, which reflected rising unemployment, wage cuts, and the loss of retirement savings.
As America rebuilt their financial security over the next decade, we found new jobs, reconfigured our retirement accounts, and eased off relying so much on credit cards to pay bills and fund vacations.
The biggest red flag we can see from our credit card debt crossing the $1 Trillion mark is that we are settling back into our comfort spot: accumulating more credit card debt because we are comfortable with our current situation.
But it’s not too late.
Once we realize what our actions are doing to our finances, we can take steps to avoid overusing our credit cards and take steps to pay down the higher interest rate accounts. Otherwise, we may find ourselves in dangerous financial situations, like the fallout from a Recession.
Another red flag is the rising interest rates.
Recently, the Federal Reserve raised the interest rate a quarter percentage, and we will begin to feel that as our balances and minimum payments will rise this year.
First time homebuyers and those of us looking to refinance our mortgages will feel the rising interest rates as well. Recently, the average interest rate for mortgages jumped from 4.55% to 4.61%. This may seem like a small increase on paper, but it feels a lot heavier on your bank statement.
But the good news is you can get ahead of your bills and cut your monthly costs by starting a few good financial habits. Even if you can only afford a small amount extra every month, it will go a long way toward your bank account, and your sanity.
Take These Steps to a Better Financial Future:
Step 1:
Take a hard look at your expenses every month. Make a budget and stick to it, even if you have to make some cutbacks in a few areas of your life. Once you have a firm grip on your finances, create an emergency fund for you and your family. Even if you only put $20 aside every paycheck, keep that money separated from your other finances and do not touch it unless you find yourself in a financial emergency.
Step 2:
Evaluate your credit card interest rates, find the card with the largest interest rate, and put a little extra money toward that payment every month until the card is completely paid off. Then, find your next highest interest rate credit card and apply the payments you were making on the first credit card to pay down the next card’s balance even faster.
Repeat this process until all your cards carry a zero balance.
Now that you have freed up all that money in your monthly budget and your credit score has increased, contact your credit card companies and request reduced interest rates.
If they will not lower your rates, apply for better cards with lower interest rates and cancel the old cards. They don’t deserve you.
Step 3:
Give the Island Approach a try. This method involves using each credit card for a specific purpose. Take advantage of new credit cards with 0% balance transfers and rewards programs.
Transfer your credit card debt to a new card that has a promotional offer of 0% interest rate on balance transfers for the first year. This way, you will save lots of money on finance charges and pay down your balances sooner.
Use your higher-interest rate cards for smaller everyday purchases that you can pay off every month to avoid paying big finance charges.
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