In August of 2023, citizens of the United States of America topped one trillion dollars in credit card debt! That is unfortunate.
Bad credit
Credit card debt is “bad debt” in that it is used to purchase consumables, versus assets. Additionally, credit card debt is open-ended ended, offers high interest rates and low minimum payments. What all that adds up to is people paying for their pizza at 20+% interest over the course of many months.
Yum, pizza!
For example, let’s say you bought a pizza to enjoy with your family on streaming movie night. A large cheese pizza is about $20.00 in most of America. I will presume your family either adds toppings or needs more than one pizza for this demonstration and the total for your pizza dinner is closer to $30.00 including tip. If your credit card has no other charges and your credit card company requires a minimum payment of 10% of the balance amount, it would take one year to pay off your pizza.
Most people who are comfortable using their credit card for pizza use it for other consumables, like clothing, dining out, going to the movies, golfing, and downhill skiing. Or if they are less boujee, they might use a credit card to go bowling, take their kids to the zoo, or visit a trampoline activity center.
The problem isn’t the one-off pizza; the problem is the one-off pizza, the dinner at the local bistro, the shopping spree with friends, and the cocktails afterward. All this can add up fast. In 2023 the average American had about $6,500.00 in credit card debt. Using a formula of the minimum payment (interest only, assuming a 20% interest rate) plus 1% of the balance it would take 299 months to pay this amount off at $109.27 per month. That is 24+ years. Even if you pay the minimum (interest only, assuming a 20% interest rate) plus 5% it would take 111 months to pay off this amount at $325.00 per month. That’s just over 9 years. Either way, the cost of the debt is very high. If you pay the minimum over 24 years the $6,500.00 debt costs over $24,969.44 in interest.
Pay off your debt
Unless you are using debt as a way to grow assets, avoid carrying debt, especially credit card debt. Here are a few tips to help you pay off your credit card debt-
Be honest with yourself. Look at your credit card statement. Do you remember what you charged to add to your balance? Realizing that thousands of dollars debt are for items you don’t recall purchasing is a real eye opener.
Commit to never using your credit card again until you can pay off the balance in full every month.
Pick one credit card as a starting place and pay as much as you can afford. All other cards should be paid at the minimum plus a little extra.
Every windfall you have - use it to pay towards your selected card. If you get a tax refund or bonus from work, use the funds to pay off your credit card.
Have a garage sale and use the funds to pay off your credit card.
Create a spreadsheet to track your progress. When you are feeling the urge to splurge look at your spreadsheet showing your progress. This is a great inspiration to avoid a spending spree.
Visualize what your life will be like when you are fully out of debt. Calculate how much of your income you’ll be able to invest for your future. Then calculate that amount over time. No new handbag is as lovely as financial freedom.
Look at expenses that you can find alternatives for. Do you have a book subscription app? Go to the library. Are you streaming multiple movie channels? Cancel your subscription and read your library book instead. Make sure to use the savings to pay off your selected credit card.
Choose to make do with the wardrobe you have for a while. Make a game of it and see how long you can keep your clothes in good order. When you opt out of that new jacket, use the funds towards a credit card.
Instead of a Caribbean vacation, decide to staycation instead. Check out your local Chamber of Commerce or Travel Bureau to find fun stuff to do locally. If you have a vacation budget, use the funds towards your credit card.
Learn to cook. You can save up to $3,000.00 per person in your family by preparing home-cooked meals versus takeout or restaurant food. Use the savings to pay off a loan.
All of this may seem overwhelming, but I believe in you and know you can make this change if you want to gain control over your financial situation.
If I can do it so can you
When I decided I no longer wanted debt, in 2008, I was in a bad place. My marriage had failed and I was emotionally broken as well as financially broken. Taking charge of my finances felt like the one thing I could do to control my life. I didn’t know at the time that the choice to become debt-free would become a lifestyle. In fact in the beginning I was trying to figure out how to live a new way without the fear of becoming destitute. Now, fifteen years later I would never go back to living with debt.
Focus on the eventual outcome
Living debt-free has allowed me to have experiences that would have been out of reach had I been burdened by ongoing high loan payments. When I made the choice to pay off all my debt I was living in one of the most expensive areas of the U.S. and I was making well under the median income for that region. It was hard, but I did it and so can you.
It’s not forever if you don’t want it to be
Finally, remember that your sacrifice is for now. When you are debt-free adding back a movie streaming service may be something you choose, or not. The key is that debt-free living means having the resources to make more choices that will have a positive impact on your lifestyle. For example, perhaps you want to go back to school, change professions, or take time to see the world. You’ll be able to make choices without sacrificing the safety of stable finances.
Learn more about how to govern what is important to you when you buy my book, “Your Future Self: A Time Travelers Manifestation Workbook for Intentional Well Being” or if you want to learn more about living a frugal life you can buy my book, “Never Worry About Money Again: Gain Financial Freedom By Becoming Better At Managing The Money You Have”
Comments
Post a Comment