The average credit card debt per household in the US is $7,194, the average mortgage debt is $149,782, and the average student loan debt is $34,703. That’s a lot of debt to be resting on your shoulders, however, as is often said, there is good debt and there is bad debt.
Once you have paid off a good debt you will usually be rewarded with a sellable asset, for example, when you pay off your mortgage, you will have a house at the end of it.
Bad debt is usually classed as high interest loans and credit card debts. With these, you will have to pay large amounts of interest, and when they are paid off, you can enjoy a feeling of relief, but no tangible asset.
Because bad debt usually comes with high interest, you should always consider getting rid of that debt first – pretty much before you do anything else.
If you have any kind of debt, then you should first look at what is being charged in interest on each debt. Your mortgage will usually attract the lowest amount of interest, personal loans will usually be slightly higher, and if you have credit card debt, you could be paying as much as 22% p.a. in interest.
An estimated 46.7% of American households carry a balance on their credit cards each month, which means the card companies are taking home a huge chunk in interest payments, while the average consumer just keeps revolving their debt without actually paying it off.
Paying off high interest credit card should be attempted whenever possible. If you are putting money aside in savings and you have high interest credit card debt, it’s worth thinking about what that means in the long term.
Your savings may be earning 5% interest, but if you are being charged 22% interest on your credit card debt, you may be losing out financially.
However, even if you have made the decision to pay off your credit cards, it’s not always an easy thing to do (otherwise no one would have credit card debt, right?). There are a few things that can help out though:
- Get a balance transfer credit card, transfer your current balance, and use the low interest introductory period to pay off as much of your debt as possible,
- Get a low interest credit card (some can be as low as 10% p.a.), and keep paying off the debt,
- If you have a rewards or Gold or Platinum card, think about whether you need all its features – sometimes these cards charge more in interest, and it can be cheaper to keep a no-features card,
- Make a budget, work out how much you can afford to pay off your credit card debt – and stick to it!
- Once your debt is paid off, try to pay off your entire credit card bill each month to avoid interest charges.
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