$856 Billion.
That is how much credit card debt was held by US residents at the end of 2021.
The average American has a balance of $6,569 in credit card debt that is not paid off each month.
Over half of Americans do not pay off their credit cards each month.
Note: I apologize to readers outside the USA. While I could find total credit card debt by country, I could not find a worldwide total or a worldwide average per person.
When you carry a balance month-to-month on a credit card that charges you interest, you pay a lot more than what the total balance shows.
For example, if you are that average American with $6,569 carried over each month at the average 25.29% APR, paying the minimum monthly payment will take you approximately 30 years to pay the balance and the total amount paid would be almost $50,000. That is assuming you only pay down the balance and do not use the credit card for any new purchases.
You can see how it is so easy to get buried under all that debt! What can you do when credit card debt is overwhelming you?
The one thing you do NOT want to do is ignore it and hope it goes away.
The second thing you do NOT want to do is keep charging for things you cannot afford.
Instead, write down every credit card you have.
Next to it write the total amount due, the minimum payment due, the total available credit, and the APR. If there is a promotional balance, write down when the promotion period ends. This may take a little research, but is available on either the paper or electronic statements.
Next, you are going to score each credit card. Divide the total amount due by the minimum monthly payment. Anything below 50 is something you want to focus on first. 50-100 is the next area to focus on. Anything over 100 is actually not too bad of a rate and you may find it more advantageous to invest the money you would otherwise use to pay off the debt. Chances are your credit card debt will not be in this category. It tends to be low interest, long-term loans like mortgages.
From here you have a choice to make. There is no right or wrong answer, it is whatever works for you.
You can decide to pay off your credit cards:
– in order of the score, from lowest score to highest score- in order of balance, from highest to lowest
– in order of balance, from lowest to highest (easy win)
– in order of APR, from highest to lowest
– in order of APR, from lowest to highest (almost no one chooses this option, but it is available)
A few things to keep in mind:
1. If you have a promotional balance, be sure to pay it off before the deadline date. The 0% APR is accrued in the background and will show up on your balance after the promotional period has expired.
2. Whatever you are paying will not decrease until all the cards are paid off. As you pay off one card, you will add that amount to the minimum payment of the next card. This will help you pay off each card faster.
3. While paying down your cards do not charge anything unless you have the money in the bank to pay it off right away. This amount does not count toward the minimum monthly payment.
I recommend keeping track of your balances monthly, whether in an Excel spreadsheet or on a piece of paper. It can be very motivating to see how far you have come!
Like losing weight, it can be easy to slip into old habits and end up in credit card debt again. After you have paid off all of your cards, become the person who uses her credit card like a debit card. There are great advantages to charging purchases (including additional insurances and warranties), especially if you have a rewards credit card, but any advantages quickly disappear when you start paying interest.
Money Moms know the importance of using debt wisely. They know how to leverage debt. If you want to be a savvy shopper, email me to learn more about the Money Mom Academy. It is the fastest way to get you from where you are to where you want to be- living life on your terms and creating magical memories with your loved ones (which are even more magical when credit card points pay for it 😉 )!