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(ARA) - At a time when the average household owes approximately $9,000 in credit card debt, one credit counselor is asking Americans to step up to a debt-reduction challenge: “If 2004 was your year of plastic, resolve to make 2005 the year of green,” says Michael McAuliffe, president of Family Credit Counseling Service, a nationwide non-profit offering financial education and debt repayment solutions.
McAuliffe is concerned about the amount of debt families are carrying. “At an average interest rate of 18 percent, it can take more than 30 years to pay down a $9,000 balance by making just the minimum payments, and cost two and a half times the balance in interest,” he says.
By resolving to get ahead of compound interest, Americans can more quickly save money for vacations, education or other personal and family goals. And, says McAuliffe, setting a financial resolution isn’t just about the money. He points out that the stress caused by debt can impact all areas of life, including relationships and work. “Getting ahead of debt will reduce stress and help you live a more satisfied life.”
McAuliffe provides the following tips to pay down debt:
Have a plan
Track your family’s spending to determine where all of your “extra” money goes and create a detailed monthly budget. “Don’t get nickeled and dimed to death,” says McAuliffe. “Analyze all of your expenses each month and be sure you need and/or use all of the services you pay for.” Without a budget, you may not be able to see how much of your income can realistically be applied to your outstanding debt. You would not want to get caught in the cycle of paying too much to your creditors and wind up using your credit cards for living expenses before your next payday. A Personal Budget Guide can be downloaded at www.familycredit.org.
Review all credit card debt and interest rates
One way to pay down your debt is to make the minimum payments on all of your cards and pay all excess income to the creditor with the highest interest rate. Some creditors carry an annual interest rate as high as 35 percent. It could make sense to pay more on that debt than on a card with a 12 percent rate. You can determine your monthly debt payments by using a credit calculator like the one at www.teachmeaboutcredit.org. Additionally, you may want to keep only a few cards with the lowest interest rates open and switch other credit card balances to them. Also, it never hurts to contact your creditors and ask for reduced rates.
Save for major purchases
Resolve to hold off on major purchases, and instead save for future comfort and unexpected expenses. If you put your money towards credit card payments instead of unnecessary purchases, however tempting, you’ll save thousands of dollars in interest that could be spent on big-ticket items such as vacations and/or other personal and family goals down the road. “Think of it as buying piece of mind instead,” says McAuliffe.
Don’t think you can borrow your way out of debt
Stay away from payday loans, rent-to-own, cash advances and/or title loans. The compound interest on these debts will wind up costing you too much in the long run.
Most importantly, be patient. “Getting your finances under control does not happen overnight and there is no sense in compromising your health by stressing about it every day,” says McAuliffe. “Make a commitment to becoming debt-free and be vigilant about meeting your financial goals.”
If debt problems are keeping you from enjoying the New Year, contact a professional debt counselor at (800) 994-3328 or visit www.teachmeaboutcredit.org.
Courtesy of ARA Content
