Credit Card Debt-Easy to Get In, Hard to Get Out

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Matt Soladay

Matt Soladay

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.

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

The more money you put towards the credit card debt and the faster you do it, the better.  It’s a simple statement, but we do not need to overcomplicate a straightforward strategy.  Here are seven steps to help eliminate your credit card debt: 
1. Stop using all of your credit cards immediately, even if you are getting points for purchases or bills.  You are starting a brand-new diet, one that eliminates credit card use. Cash and debit cards are your friend! 
2. Stop all active savings or investing you are currently doing, except contributing enough to get your full employer retirement match.  
3. Continue making all required/minimum payments on all your outstanding debts you are current with.  There is no need to continue making any extra payments outside of the credit card you will attack first.
4. Identify the one credit card you are going to pay off first.  I always recommend paying off the card with the highest interest rate.
5. Cut out all unnecessary expenses and reduce spending as much as possible until all your credit card debt is gone.  Pause elective shopping, going out to eat, vacation, really anything that is optional.  The more you cut, the more money will be available from your income to go towards debt elimination.
6. Put as much money as possible towards eliminating the debt on that one card you identified.  This includes any cash savings or non-retirement account investments. And if appropriate, pick up additional shifts to make extra money. 
7. As soon as the debt on the first card is eliminated, take every available dollar to eliminate the debt on the next card and continue this process until your Credit Card Debt is gone.

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.

Bottom Line 

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.

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