Americans have a love affair with credit cards. They make life easier while also making it easier to overspend. Studies reveal that a purchaser will spend an average of 20% more on an item when using a credit card than when paying with cash.
Credit card usage peaked in the fourth quarter of 2008, as the nation entered a severe recession, with balances reaching a then-high of $866 billion. Credit card balances fell significantly over the next 5 years. As the economy recovered, however, the use of credit cards and credit card balances began to rise. Today, credit card balances are approaching the $1 trillion level. The average consumer carries a credit card balance of $7,279 (Lendingtree.com). Fifty-three percent of credit cards being actively used are not paid off in full each month. The average interest rate of these balances is 20.92%, and the average interest rate being offered to new borrowers is 23.65%.
The good news is that most Americans make regular credit card payments, and only 2.25% of credit card balances are delinquent by 30 days or more.
The minimum credit card payment is typically about 2% of the balance. On the average balance of $7,279, the minimum payment would be $86. At that payment and an interest rate of 20.92%, it would take a borrower 28 years and 3 months to pay off the debt. The total interest paid would be $27,776. In this scenario, the $7,279 in debt would cost the borrower $35,055.
When a consumer (that’s you) begins to take an active role in their financial future, they can minimize the interest on credit card balances. Remember, interest is handing part of your hard-earned paycheck to someone loaning you money. If you are not paying off your credit card each month, you need to determine why you carry a balance.
The steps below can help you make advances on getting a handle on your credit card debt:
- Always pay at least the minimum balance on time.
- Set up automatic payments to ensure that payments are always made on time.
- Pay more than the minimum balance whenever possible.
- Consider the actual cost of debt before making large purchases on credit cards.
- If your balances are on multiple credit cards, prioritize paying off the card with the highest interest rate first.
- Live below your means so that you will have some money each month to put toward your credit card balances.
- Create a budget to live within your means. (Refer to my past posts on budgeting)
To learn more about how to manage your money and pay off debt, please click the Finances categories tab to find many blogs on money management, budgeting, and stewardship. My book Honoring God with Your Money is a great tool for financial money management.
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