Credit Card Debt Has Reached an All-Time High. Here's How to Get Yours Under Control
It's no secret that Americans seem to have a collective tendency to charge up a storm. But new data tells us that U.S. credit card debt has reached a record high of $1.0217 trillion, or so says the Federal Reserve.
Not only that, but as of late 2016, the average American household was carrying roughly $16,000 in credit card debt. Given that 57% of Americans have less than $1,000 in savings, that number makes sense -- but it points to a worrisome trend nonetheless.
If you're drowning in credit card debt, or aren't quite there yet but are slowly creeping down a dangerous path, you should know that you do have options for digging out of that hole. And the sooner you do, the less you risk damaging your finances irreparably.
The dangers of credit card debt
The problem with credit card debt is its ability to rapidly spiral out of control. That's because any time you fail to pay off a balance in full, you'll not only start incurring interest charges, but you'll also accrue interest on that interest. The result? For each day that goes by where you don't pay off that balance, it gets just a bit higher until you suddenly wake up and realize that you're in way over your head.
But it's not just that credit card debt can be extremely costly to pay off; it can also damage your credit score, and with that comes a host of repercussions. For one thing, the lower that number, the harder it'll be for you to get approved for additional borrowing, whether it's in the form of a mortgage, auto loan, or even another credit card. Furthermore, if your credit is abysmal, you might have a hard time renting an apartment or even landing a job (believe it or not, some companies run credit checks on applicants, and can write you off as a candidate if they don't like what they see). That's why it's critical to get whatever amount of debt you have under control -- pronto.
Getting out of debt
If you're ready to face your debt problem head-on, you can start by cutting up your existing credit cards, or locking them away until you're starting over with a clean slate. Though credit cards can be a useful financial tool, they also open the door to temptation, and that's not something you need when you're supposed to be focused on paying down debt.
Next, review your existing debts to determine which ones are costing you the most, because those are the ones you'll want to tackle first. You may be tempted to knock out a $500 balance on a credit card charging 12% before moving on to a larger target, but if you owe $3,000 on a card charging 20%, it pays to apply your first $500 of disposable cash toward that greater (and costlier) sum.
Of course, another option is to consolidate all of your debts by transferring them to a card with a lower interest rate than your current ones. This option, however, is generally the most feasible for folks with decent credit, so if your score is in the gutter, it may not be on the table.
If you can't snag a lower interest rate on your debts by going the transfer route, your next best bet may be to contact your lender and beg for a rate reduction. Believe it or not, 69% of consumers who actively ask for rate reductions end up getting their way, and if you're current on your minimum payments, there's a good chance your lender will comply. (Remember, your credit card company wants you to keep paying interest, and lowering your rate might compel you to keep your balance where it is rather than transfer it elsewhere.)
Finally, consider getting a side hustle, and applying that extra cash directly to your debts. Of the 44 million Americans who currently work a second job, more than one-third manage to bring home over $500 a month. And while you could cut expenses to come up with that sort of cash, you'll need to really be willing to uproot your lifestyle to get there. With a side gig, you'll need to put in the time, but you won't necessarily have to downsize or give up leisure spending to make a dent in your credit card debt.
No matter what steps you take to rid yourself of credit card debt, be sure to make it a priority. Otherwise, the problem is only likely to escalate, and once it does, it'll become all the more difficult to recover.
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