America is a nation addicted to using credit cards. The American population has amassed $857 billion of credit card debt. As people begin to forget the 2008 financial crisis, banks have once again started aggressively marketing credit cards. Banks tend to send mail every week promising bonus points, extra cash back and a lifetime of plastic-induced happiness, and the marketing is working: in April 2015, credit card debt grew by 11.5%, its fastest pace in years.
Credit cards can be remarkably useful spending tools when used responsibly. Should you pay your balance in full and on time every month, you are receiving an interest free loan, often with some airline miles on top, however, over 40% of Americans are not able to pay their balance in full. Instead they are borrowing money at interest rates that are usually well above 15%, which means the typical family is paying over $1,500 of interest every year. In a world where middle class families feel increasingly squeezed, this is too much money to be lost to interest.
Being in debt does not need to be a life sentence, you can break the debt cycle and travel the country. Countless people have put together plans to become debt-free. Most people were surprised at how much power and how many options they actually had, it is very easy to sit back and let credit card debt control your life, but I want to help you take control of your life and crush credit card debt forever.
Why Are Credit Cards So Tempting?
Diners Club invented the credit card in 1950, the purpose of the Diners Club was to make it easier to make payments, diners would no longer need to carry cash, and restaurants could reduce the amount of cash they needed to keep in their registers, it was a great deal for both sides.
Over time, credit cards evolved from being a payment tool to a borrowing trap, most of the money is now made from the interest charged on balances.
The credit card has been designed to lull you into debt, credit limits are usually a multiple of your monthly gross income, it is very common to see a credit limit that is at least twice your monthly gross income, and sometimes even higher than that, the minimum payment is shockingly small, usually only 2% of the balance.
When people spend with plastic, they usually spend more than if they were carrying cash, so you end up spending just a little bit more than you should every day, and when the bill comes due at the end of the month, it is very easy to just pay what you can afford, and worry about the rest of the balance another day.
Why Do We Have So Much Debt?
There are many people buried in credit card debt. A continuous question that people who are in debt get asked is how they got into debt to begin with? The vast majority of people cannot remember what they bought and it is very rare to get into credit card debt because of a single, large purchase. Instead, people usually just spend $10 more than they should, ever day, in just three years, you can have over $10,000 of debt, just $10 at a time.
If you started every day with a pile of cash, you would be much more likely to limit your spending, after every purchase, you feel that pile of cash get lighter but with a credit card, you can just swipe and enjoy.
Credit card balances usually build up over 12-18 months, and then they reach their “steady-state balance”, that is industry language for a balance that never goes down, your monthly payment barely covers the interest accrued and new purchases made in the month.
How Can We Break The Cycle of Debt? There are entities out there that can help you put together a plan to get out of credit card debt, we focus on a few key questions regarding this topic:
Should you be trusted with a credit card? Having a credit card is huge responsibility. The temptation of wanting to spend money while you have a credit card is easy to fall in. Be aware of on the purchases you make because there can be consequences later.
Are your fixed expenses too high? Credit card debt may just be the symptom of a bigger problem. You might have purchased a house or car that you can’t afford. As a result, you will always struggle to get through the month until you reduce your fixed costs. there are people that can help you do the math and find the true source of your budget problems.
Credit score? There are so many credit score myths out there that refuse to die. One of the most popular ones is that when a consumer wants to build a good credit score they first need to generate credit card debt, this misinterpretation in a lot cases causes people to fall into debt that they can not afford to pay. You can find people that will help de-mystify credit scoring and show you how you can take steps today, even while you are still in debt, to build your score. You do not need to be rich to have a good credit score.
Can you refinance your debt to a lower interest rate? Getting a lower interest rate can take years off your debt. Lenders can help cut your rate by 30% or more. It can be done by doing things like refinancing your home in order pay off all of your credit cards, you will end up with a lot of available credit. However, unless you’ve fundamentally overhauled your budget and your spending habits, there is a very good chance you will rack up credit card debt again. Within a few weeks, months, or years, you could end up with maxed out credit cards plus a higher home mortgage as a result of the refinance. You’ll be deeper in debt, and you won’t be able to turn to your house to provide relief. If you do decide to refinance your home to pay off credit card debt, you absolutely must make a true commitment not to get back into credit card debt.
Should you consider consumer credit counseling or bankruptcy? If you are just too deep into debt, you may have to take more aggressive action. But it should all start with advice from the experts. With the right professional help, you will be able to build a plan to be debt-free. People have more power, better tools and a louder voice now than ever before. These experts will help you use all of the above to get out of credit card debt as fast as possible.
