Today’s lower interest rates and flexible repayment schedules make borrowing easier than ever before. For the disciplined borrower, credit can be an excellent financial tool. However, because borrowing is so easy, many individuals have used credit to spend beyond their means. In fact, it is estimated that the average credit card debt per household is $15,799*
Borrowing more money than you can afford is costly in many ways. Paying off or reducing the amount owed on credit cards can potentially save you thousands of dollars in credit card interest. Too much debt isn’t just expensive – it’s emotionally stressful.
1. A Good Time to Start is Now
Once you have made a mental commitment to get out of debt, you will have more energy and peace of mind to focus on a workable plan.
2. Make a plan
Understand where you are financially. Create a cash flow statement and a household budget and look for ways you can cut unnecessary expenses. Determine what you can afford to pay each month to reduce your debts, and then make a commitment to make those payments. Start to pay off the debts with the highest interest rates, and then work your way down until you are debt free.
3. Stop borrowing
Putting your credit cards away in a safe and inconvenient place may help prevent you from using them.
See Also: Paying Off Your Credit Card Calculator
4. Spend smarter
Living in some of the wealthiest countries in the world exposes us to wanting a lot of things. While it is great to save for special and important things, don’t spend more than you earn.
5. Understand how much you are really paying
When you look closely, minimum payments for credit cards are mostly made of of interest. Very little of the payments goes to pay down the principle, meaning it will take a longer time to pay off your debt and you will end up paying more in interest charges.
* Calculated by dividing the total revolving debt in the U.S. ($801.0 billion as of December 2011 data, as listed in the Federal Reserve’s February 2012 report on consumer credit) by the estimated number of households carrying credit card debt (50.2 million)