Why Is My Credit Card Debt Killing Me
One of the reasons credit card debt is so unpleasant is because it seems like it never goes away. No matter how many times you make a monthly payment, the balance thats left seems insurmountable. Why is that, anyway?
Well, there are two reasons. The first is that the interest rates on most credit cards are, frankly, egregious. I just randomly grabbed the latest monthly statement for one of my cards and the interest rate on it is 15.99%.
Compare that to the average 2.67% interest rate on a conventional 30-year fixed rate mortgage as of December, or even the average car loan interest rate , and you can see how much drastically worse credit card interest is.
Using 16% as an example, if you have the average household credit card debt and you only make minimum payments, youll be in debt for 23½ years and will owe a total of $12,760, explained Ted Rossman, an industry analyst at . Thats bad enough, and the math is even worse at higher interest rates.
But theres a second problem, and that problem is called compounding interest. When you first rack up debt and a bank starts charging you interest on it, at first youre just paying interest on the money you spent. But youll soon be paying interest on both the debt and the existing interest.
And if you miss a monthly payment? Youre charged late fees for inability to pay on time, which then becomes a part of your new balance and accrues interest, said Stevens.
Get A Side Hustle To Increase Your Income
Scraping together extra income can increase how much you can put toward your debt, accelerating your payoff.
Look into legitimate side hustles. Some jobs can be completed in less than an hour, like user testing for websites and apps. Others, like freelancing, will take longer, but may earn you more cash.
S You Can Take To Pay Off Your Debt Fast
If you want to pay off debt fast, its important to get motivated. Write down why you want to get out of debt. Maybe youd like to save for a down payment on a house or put more money in your 401.
Or maybe you hope to pay for part of your childs college education or travel more often. Hang whatever you wrote down on your kitchen fridge or bathroom mirror so that you have a visual reminder of your why to keep you motivated to reach your goal.
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Look At Your Biggest Expenses And See Where You Can Trim Fat
Once you know where youre at regarding your debts, expenses, and budget, you must take steps to close the purse strings. You cant get out of debt if your debt keeps growing. Because you cant take that money from debt payments or savings, itll have to come from elsewhere.
Go over your budget and categorize your spending to see where youre spending too much moneyon transportation or eating out, for instance. Then make an expenditure reduction plan. Here are some ideas:
- Buy food in bulk, especially when its on sale
- Clip coupons for everything that you buy, from food to clothes to toiletries and more
- Sell your car and walk or bike to workif youre like most people, you spend an average of $9,000 a year on your car
- Cook more at home and eat out less
- Cut your subscriptions for things like cable and the gym, and opt for lower service packages for necessary things like cell phones and internet
- Bring your daily coffee from home rather than buying out
- Always buy used: check thrift stores and classifieds when you need to buy anything, including clothes, furniture, vehicles, and even appliances
Avoid Scammy Debt Relief Strategies
Heres the deal. While youre working hard to get rid of debt, you might hear about debt relief strategies that can sound pretty tempting during the grind. But most of these are risky at best and scammy at worst. Lets take a quick look at four types of debt reduction strategies :
A debt consolidation loan is a kind of personal loan that combines several debts into one monthly paymentbut it comes with an extended payoff date, extra fees and usually a higher interest rate than what you started with! Plus, you might have to put up your home or vehicle as collateral.
work by giving you a new credit card that combines all your credit card debt into one monthly paymentwhile also tacking on fees and a huge spike in interest if you make a late payment.
With a home equity line of credit , you borrow against the equity in your home, get a secured loan, and use that money to pay off your other debts. In other words, you give up the part of your home you actually own when you borrow against the equity. And what do you get in return? More debt.
One final debt reduction strategy is student loan consolidation. It works only with federal student loans, rolling them into one lump payment. Its the only strategy were okay withif make sure you arent charged to consolidate, you get a lower and fixed interest rate, your repayment period is shorter , and your motivation to pay off your debt doesnt drop off.
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Find A Payment Strategy
There are many different ways of getting rid of credit card debtso if youre looking for the best solution, focus on the debt payment strategy that is the best for you.
The debt snowball method, for example, tackles your smallest debt first. Continue making minimum monthly payments on your other debts, but throw all your extra money on your smallest debtand when that debt is gone, start throwing your money at your next smallest debt and so on. As each debt disappears, youll have more money to put toward your remaining debts. This is why its called a debt snowball.
The debt avalanche method, on the other hand, tackles your highest interest debt first. Similar to the debt snowball, you make minimum payments on all your other debts, but with this strategy you throw your extra money at the debt with the highest interest rate. Once that debt is paid off, repeat the process with the debt that has the next highest interest rate, and so on.
If youre not sure whether to start with the debt snowball strategy, the debt avalanche strategy or any of the other debt payment strategies out there, try using a debt management calculator. If you want to know how long it will take to pay off $10,000 in credit card debt, for example, a debt calculator will give you the answer. You can also use debt calculators to learn which debt repayment method might be the easiest, and which one might save you the most money over time.
Unsure Which Option Is Best Picture This
Imagine it this way: Youre trying to bail water out of your sinking ship while sailing on a storm-tossed sea. Unfortunately, a bunch of creditors are standing behind you with beach pails, pouring more water in.
The smallest guy with the littlest bucket is right in front of you. At the far end of the boat, a monster-sized jerk with a huge bucket stands, grinning with an evil gleam in his eye.
Since the big jerk has the biggest bucket, it makes sense to eliminate him first, then go to the next biggest jerk-and-bucket in line. But take another look that guy at the end of the boat is awfully large, isnt he?
Perhaps it will be easier to tackle that big fella after youve eliminated the five smallest guys first.
The right answer depends on you. If youre ready for the challenge, head directly toward the big jerk. If you need a bit more motivation and confidence, tackle those smaller jerks first.
No matter which path you choose, you cant go wrong as long as you start paying down that debt right now, with all the energy you can muster.
If youre looking for more help, check out our Solutions Center. There, you can look for an expert who will help you whittle down your credit card debt.
Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.
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How Personal Loans Impact Credit Scores
Often, a personal loan has the potential to help you from a credit score perspective. Just be sure you make every payment on time. If you open a personal loan and pay it late, it could damage your scores significantly.
I Have $15000 In Credit Card Debt What Should I Do
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If youre carrying serious credit card debt like $15,000 or more you’re not alone. The average household with revolving credit card debt that is, debt that they carry from one month to the next had more than $7,000 worth of revolving balances in 2019. That’s just the average. It’s not at all uncommon for households to be swimming in more that twice as much credit card debt.
But just because a $15,000 balance isn’t rare doesn’t mean it’s a good thing. Credit card debt is seriously expensive. Most credit cards charge between 15% and 29% interest, so paying down that debt should be a priority.
However, dealing with a five-digit credit card debt can feel overwhelming. Coming up with that kind of cash is daunting, but there are steps you can take to manage a heavy debt load:
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It Takes Time And Determination To Conquer A Mountain Of Debt
But if youre equipped with the right knowledge and tools, the journey to conquering that mountain can be relatively smooth. Plus, you dont have to tackle that mountain of debt alone credit counselors are available to help.
Of course, no two attempts to conquer debt are the same a debt reduction plan that works for one person may not work for another. And unless you stick to your plan, youll likely have a tough time chipping away at your debt.
If youre not sure how to tackle your credit card debt, weve got some advice on steps you can take. While this advice wont guarantee success, it can help point you in the right direction.
The Best Way To Approach Debt Is To Tackle One Balance At A Time
Now I know it may not be possible for you to make above-minimum payments on every debt every month. And dont worryyou dont have to. But what you do have to do is choose one debt to pay down first. While youre doing that, continue making minimum payments elsewhere.
For instance, say you have five debts with different balances. To make things easy, well say the minimum on each is $100. Youd start by making the minimum on four of those debts, but pay, say, $200 each month toward one of the debts until it was paid off.
As soon as you take care of that first balance, you can do a happy dance and start to tackle the next debt. From there, pay the minimum each month on the remaining three, and pay $300 toward the singled-out debt.
The Harvard Business Review investigated different debt reduction approaches and found that this method can help you pay off debts up to 15% faster than if you just spread the $600 evenly among all the debts.
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Choosing A Balance To Tackle Method Two: The Snowball
In the other camp are the people who advocate the snowball method. Its called this because you start with the smallest debt and work your way to the biggest one, like a snowball gathering speed as it rolls down a hill.
Between a $500, a $200, and a $1,000 debt, youd start with the $200 and finish with the $1,000. This is more a psychological approach to debt-reduction because the idea is to gain inspiration and momentum from your small initial successes.
The business mogul Dave Ramsey devised this strategy. While its a sound method, you may end up paying a lot more interest with this technique. However, if you have trouble staying motivated, the extra interest may be well worth it to get out of debt.
Slash Your Monthly Expenses
Another way to pay your debt off faster is to start living more frugally. Cut costs in every area you can. Start finding free stuff to do for entertainment.
Learn to save money on groceries. Cancel unnecessary subscriptions and memberships like cable TV and gym memberships.
Look through every line item on your budget and get rid of the expenses you dont absolutely need. Then take all of the money you save and put it toward credit card debt.
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Consider A Personal Loan To Consolidate
Depending on your situation, you might be able to consolidate your debt using a personal loan. You use one bigger loan to pay off the smaller loans, and then you have one installment payment to make each month. This makes the debt more manageable while at the same time potentially saving you money in interest and getting out of debt faster. Plus, you can pay more than the required amount to accelerate your debt payoff.
Figure Out Your Budget
Getting a handle on your income and expenses can you help you figure out if you have any extra money to pay down your debt. Paying more than the minimum each month can speed up your payoff timeline.
While youre focusing on debt payoff, work to build an emergency fund. Even a small one can prevent you from getting deeper into debt if an unexpected expense comes up.
Use this calculator to figure out your budget.
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What Did It Feel Like To Have That Much Debt
It was suffocating.
A big part of why a disproportionate amount of my debt comes from my freshman year was because I was preparing for circumstances and expenses that never came to be.
My first year of college was the first time and the last time since I was really young that I wasnt going to work. Even as a kid I sold Kool-Aide during yard sale season, I mowed neighbors yards every week, and I would pick up odd jobs where ever I could.
In high school I always had at least one part-time job. It was pretty typical for me however, to work several different jobs in a single week. Id been used to making money and paying my way for wrestling camps and tournaments along with anything I wanted to do with my friends.
As I was getting ready to attend college however, I was warned of the big leap Id being making in course work and training as a student athlete.
To make sure I didnt fall behind in my studies or in wrestling, I made the decision not to work while I was in college. This decision relied on borrowing money for tuition as well as living expenses.
That plan didnt pan out the way I expected. In part because I over compensated.
Knowing Id have to pay for a lot of the things Id been paying for while in high school in addition to expenses I didnt have much experience with groceries and other true living expenses I guessed at how much Id need to live on.
Ultimately, I guessed high and borrowed more money than I really needed to cover those expenses.
Secure An Additional Source Of Income
If you’re already on a barebones spending plan, or you’d rather earn more than spend less, look for ways to make more money you can use to pay down debt. For instance, you might sell items you don’t want or need anymore, which could secure you a quick infusion of cash. Renting out an extra room, your car or your parking space when you’re not using them via platforms like Airbnb, Turo and JustPark, can also be lucrative.
Or make extra money from home by tutoring online, freelancing on the side or user-testing digital products on sites like UserTesting.com. You can also take on a part-time job, or work at your own pace with a side gig like shopping for groceries on Instacart or delivering food on DoorDash or Postmates. Do the math on how much extra you need to earn in order to start paying down your debt taking on too much work on top of your current commitments could lead to burnout. Another option is to ask for a raise at work, once you’ve researched the market in your industry and you’re willing to demonstrate how you’ve brought value to the company.
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