The Dope on Credit Card Debt
Lisa | Mar 30, 2008 | Comments 23
There’s a statistic floating around saying Americans carry an average of nine thousand dollars in monthly revolving credit card debt.
Sound bad?
The good news is, this average doesn’t reflect the reality. According to Liz Pullium Weston at MSN Money, it’s not as bad as it sounds. “Averages don’t reflect a true picture,” she says. “Say 20 people were in a room with Warren Buffett and Bill Gates. The average net worth of the people in this room is 4 billion dollars. The other 18 people could make 100,000 dollars, or even 1 million, or 10 million dollars, but this is not reflected in the average.”
She goes on to say that if you look at the median, the average household has just $1900 dollars in debt. Median is the midpoint where 50% of the households have more debt, and 50% have less debt.
She also states some healthier statistics:
23.8 % of American households have no credit card debt at all.
31.2 % have credit cards, but pay them off in full every month.
Only 1 in 20 households (or 5%) have credit card debt of $8000 dollars or more.
The credit card debt problems, it turns out, lie in specific sectors of the population. For example, undergraduates average $2300 dollars in credit card debt, graduate students, $5800 dollars. Getting your first credit card has become a right of passage for young adults, like getting your driver’s license, being able to vote, or buying your first beer at the local pub.
And 36 % of those who owe more than $10,000 dollars make less than $50,000 dollars per year. Of those, 13% make less than $30,000 dollars per year.
If you have high credit card debt, there are some things you can do:
Start living within your means. Don’t buy anything until you have the cash, or can pay off the card before any interest accrues. If you must pay for something over time, and we all need to at some point in our lives, don’t stretch yourself beyond the point of no return. Don’t buy that $2000 dollar stereo if you can only afford the $1000 dollar one. Never charge a vacation.
Come up with a plan to eliminate your debt. As you reduce the amount of interest you’re paying, that money becomes yours.
Pay off the higher interest rate cards first.
Be sure to pay more towards the balance than the amount of interest accruing each month.
If you can’t pay off the higher interest rate cards quickly, transfer their balance to cards with lower interest rates. This could save you hundreds of dollars. Be sure to read the fine print. Transfer fees can be high.
Consolidate all your cards on to one low interest card. This keeps it simpler.
Seek outside counseling. If money management is not your forte, get some advice. You can start by checking out this website: http://www.nfcc.org/, or by calling (800) 388-2227.
Go for getting to zero debt. And once you’re there, stay there.
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Filed Under: Credit Cards • Debt Reduction • The Dope On...
Linda
The Passive Dad
J. Money
Matt
Mr. GoTo
I can certainly understand the methods you’ve mentioned above for beating credit card debt. I had to learn the hard way about how this ugly credit card system works.
I can vouch for what you said. Unfortunately, I’m one of the 13% who makes less than $30,000 and has more than $10,000 in credit card debt. It’s actually more like over $200,000 in unsecured debt. Why? Failed business. I’m in the process of filing for bankruptcy after two years of fighting like heck to avoid it.
On top of your suggestions, if you’re going to start a business, never go into debt to do it. Start it part-time while you’re still working and earning a living. Build a business with cash and then build a business cash emergency fund on top of a personal emergency fund. Don’t quit your regular job until your business is making a steady income that’s equal or greater than your job paid, including benefits for you, your family and employees.
Having a sufficient emergency fund would keep a lot more people out of debt, too. When something unexpected comes up but has to be taken care of, a lot of people pull out a credit card to pay for it. If they had a big emergency fund, they could write a check and then repay themselves instead of paying interest to someone else. The emergency fund has to be saved or at least started before the credit cards are all paid off or credit will get used when something unexpected happens. Breaking the cycle requires cash on hand.
Great article,
Sherri
Debt Free or Bust - Sherris last blog post..Sponsorship Opportunity on Debt Free or Bust!
If credit cards are the greatest source of bad debt, auto loans are a close second. You are upside down on the loan the second you drive off the dealership’s lot and it’s downhill from there. Too many people shrug off a car payment as a necessary evil.
@jimma - soooo true. cars are money mongers. thx for your thoughts - L