Top Ten Things to Know

When it comes to credit card debt, there are a few things we should know to make our lives a little easier.

1. Americans are living the dream…via credit card debt

Americans are carrying large amounts of debt on their credit cards. According to CardWEb.com, the average household with at least one credit card will have over $10,000 in credit card debt that at an average interest rate in the mid to high teens.

2. Some debt is good

Believe it or not, some debt is ok to have. Borrow for a home or college is an investment in your future and your life. What makes these debts turn bad is when you borrow more than you can afford and the plan backfires. Shop around for the best rates and the best fit for you.

3. Some debt is bad

Actually, most debt is bad. Don’t use a credit card for items you consume quickly, such as a meal or a vacation, if you can’t afford to pay the bill in full within a month or two. Rather than purchasing items on a credit card and then paying them off slowly afterwards, try saving and putting aside cash. If there is something you really want, but it is too expensive to buy at once, save for it before charging it. That way, you will be able to pay off a chunk of the balance and avoid interest charges on at least a portion of the expense.

4. Get a grip on your spending

When getting an item you want seems as simple as a swipe of the card at a counter, it’s easy to rack up a huge amount of debt without realizing it. Write down your expenses, only purchase items you need (not just want), start saving money extra income to pay down debt. Many banks are now offering handy tools that track where your money is going. They will be divided on easy to read pie charts and graphs so you know how much money you are spending on food, entertainment, clothing, bills, etc. It’s a great way to see how you could curb your spending.

5. Pay down your highest interest rate debt first

Look at all your balances and sort them in order of the highest and lowest interest rates. Always maintain at least your minimum payment, but pay your extra money to the highest interest card. After that one is paid off, move on the next highest. Continue until you can smile, debt-free.

6. Pay more than the minimum

If you only pay the minimum amount due on your credit card, you will only be covering the interest and a fraction of the principal. This can take you years to pay off the actual balance and you could spend thousands of dollars on interest. This will add up to much more than the original price of the item purchased.

7. Borrowing in all the wrong places

Credit cards are a type of “unsecured” loan. When you borrow from a credit card, there is no physical collateral – only that you promise to pay the money back. If you don’t keep your promise, your credit can be damaged and make it hard for you to get low interest rates or even get approved for a loan. However, if you borrow from your 401k or home, those items are your collateral and this could be dangerous. You could lose your home or fall short of your investment goals and retirement dreams.

8. Prepare for the unpredictable

Set money aside each pay check so you have an emergency fund. This way, when something goes array, like a car problems or medical emergencies, you won’t need to turn to credit cards and end up paying interest on your mishap.

9. Consider the interest rate on your mortgage

Paying off your mortgage quicker than your original loan can save you a big bundle of money in the long run. However, if you have a lot of other debt, it may be more financially sound to pay that off first. Your mortgage will likely have a much lower interest rate than any of your other loans. If your mortgage has a high rate, consider refinancing to lower your monthly payments.

10. Get help before you absolutely need it

If you are starting to feel stressed out about your debt and it’s getting harder and harder to make ends meet each month, consider getting help from a reputable debt counseling agency. There are many agencies that can help you manage your debt and pay off this amount. However, there are agencies that are disreputable. Be sure to do your research before deciding to go with any particular agency for help.