Americans are carrying a record amount of credit card debt, according to a new study. The average American family has about $7000 in revolving debt compared to $6081 this time last year. And as interest rates rise, so will those monthly payments to service these debts.
This year’s report focused on revolving debt (debt that is carried over month after month) because it is a “more accurate indicator” of financial hardship, said NerdWallet, who compiled the report. “Credit card debt is the stain on millions of Americans’ finances that doesn’t scrub off easily, if ever,” says NerdWallet credit card expert Kimberly Palmer. “High interest rates combined with expenses that continue to outweigh income mean that some households are unable to fully rid themselves of debt and, in fact, continue to take on more.”
Month-to-month credit card balances increased to $420 billion this year, according to NerdWallet‘s report. That’s roughly 5% more than Americans were carrying last year. Even though the talking heads in the media continue to claim the economy is on solid ground because there’s been some wage growth and the unemployment rate is holding steady at 3.7%, higher costs for goods and services (thank the trade war and ever-increasing regulations) have added to the increasing American household debt. The most likely reason for this increase is that the cost of goods and services are rising faster than incomes.
Once accrued, credit card debt can be difficult to pay off. About 9% of Americans don’t think they’ll ever be completely credit card debt-free, according to a NerdWallet survey. But because of the rising interest rates, now is a good time to start paying off that debt. It may seem daunting at first, but it isn’t insurmountable. “Carrying revolving debt and at these levels is a huge drag on household finances,” says Palmer. Palmer says it’s “worrying” that so many Americans doubt their ability to pay off their credit cards: “That just shows how hard it is to pay off debt once it’s accrued.”
HELPFUL TIPS TO PAY OFF YOUR CREDIT CARD DEBT
Here are a few ways to get your debts paid off fast. According to The Penny Hoarder, it’s not as difficult as it seems, but you will have to make sacrifices. The first step is to stop using your cards. You can also close your accounts in order to force yourself to stop using the cards. You should also budget as much as possible towards paying off credit card debt. Consider making cuts to other areas, like dropping unnecessary cell phone plans and cutting back on how many channels you are paying for. You could also consider giving up unnecessary items such as alcohol. You could, for example, use it as motivation to enjoy a drink once you’ve paid every penny of credit card debt back. A good tip also is to choose the smallest debt you have and pay it off as quickly as possible. Once it’s paid off, allocate all of the money that you were spending on that debt to the next largest until it’s gone. Soon enough, you’ll be credit card debt free.
This last tip is a personal favorite, and has helped many! Most credit card companies use an average daily balance to compute interest charges. Instead of paying $400 toward a balance each month, make two payments of $200. You’ll lower the average daily balance — so you’ll pay less interest! Try it out! Do this with the credit card balance you’ve selected for payoff first. Then apply as you whittle away at that pesky debt.
Once you’ve cleared out all of your credit card debt, move on to car payments, home equity loans, and then your mortgage. A debt-free lifestyle is possible!