The average credit card debt of U.S. Families is $6,300, and it continues to be the most widely held type of debt, with more than 45% of families reporting a credit card balance after their last payment*. The biggest problem with credit cards is that it allows consumers to spend amounts of money in excess of what they can afford, ultimately leading to debt.
Outside of unnecessary spending, credit cards are used for various reasons, from building credit to earning ‘rewards’ or making a purchase for an emergency. However, if you have credit card debt, it should be treated as an emergency and paid off as quickly as possible. Debt happens for all sorts of reasons, but it can be very difficult to get out of due to the high interest rates charged.
In This Article
Why Is Credit Card Debt So Hard to Pay Off?
Credit Card Interest rates are incredibly high, much higher than school, car, or home loans. Typically, the APR is between 16-20%, and the interest is charged when you carry a balance that is not paid in full by the statement due date. Often, the interest compounds, meaning you will pay interest on the accrued interest, making it much more difficult to pay off.
There is also a fundamental reason why credit card debt is so hard to pay off; it’s because your spending and saving in relation to your income is less than ideal. The most common financial circumstance someone with CC debt will find themselves in is where they have a high spending rate and low savings rate.
Take a look at the chart below comparing two different households with identical incomes but different savings rates. Having a higher savings rate like scenario A at 25% allows you to redirect money if needed towards planned or unexpected expenses. On the other hand, having a lower savings rate like scenario B at 5% means there is less flexibility to do the same, putting more pressure on the household to cut down on existing expenses or work overtime to pay off debt.
How To Get Rid Of Credit Card Debt
Credit Card Debt Payoff Calculator
Check out my Credit Card Payoff Calculator; it’s simple to use and will identify how long it will take to become credit card debt-free! It will feel like a weight has been lifted off your shoulders once you achieve that milestone. Depending on how aggressive you want to be with your payoff plan, you can insert different amounts into the calculator to see how much time and money you will save during your debt elimination process.
Planning and budgeting for your debt can be difficult, especially when it feels like you are constantly sacrificing to get rid of it. But remember, it’s only temporary! If you have a mountain of credit card debt, you are going to need some checkpoints to celebrate some wins along the way. This does not mean that you get out your credit card and make a celebratory purchase, but it does mean that you should recognize all the hard work you have been doing to eliminate your debt. Perhaps you treat yourself to something (within reason) that you have temporarily given up when you reach certain milestones.
Tell us, what have been some other best practices when it comes to credit card debt payoff?
*Average CC stats are from the Federal Reserve’s Survey on Consumer Finance.