America’s outstanding credit card debt reached its highest point ever, surpassing $1 trillion in 2017, according to the latest statistics from the Federal Reserve. The average American has a credit card balance of $6,375, up 3% from last year.
Long-term retirement savings are up, a positive, but many hard-earned lessons from the recession are not being observed, including the need for an emergency fund and a reassessment of spending habits.
Make a list of what you owe monthly per card and the card’s annual percentage rate (APR). Have a specific goal in mind for cutting debt like “I want to pay $50 per month per card over the minimum” or “I want to cut total monthly payments by $200.”
Pay the minimum on everything except the card with the highest balance, on which you pay more. Or pay more on the card you owe the least on. That way you’ve paid off a few cards entirely and feel like you’ve made progress. Once a particular card is paid off, keep the account open, but don’t use it and you’ll increase your credit capacity long-term.
Meanwhile pay off and close out the accounts on the credit cards that are the most tempting: department or chain-store specific cards. Swapping out these niche cards for more traditional credit cards may help you spend less.
Seek the help of non-profit credit counselors that can help you cut your debt and create a budget. Try the National Foundation for Credit Counseling (NFCC). Check out the Federal Trade Commission (FTC), the country’s consumer protection agency as well.
Planning for bad times and unexpected expenses in the present is a key part of avoiding credit card debt problems in the future.
Experts agree that everyone should have an emergency fund. That way if you get into trouble again, it is better to cash out that fund than to add to your credit card debt.
But it’s also important to recognize that you will get older and may have health issues down the road. Without preparation, these developments often lead people to turn to their credit cards and subsequently get burdened with overwhelming credit card debt again.
Sudden medical expenses are the leading cause of personal bankruptcy, according to a recent study¹. And according to the Council of Disability Awareness, one in four 20-year olds will become disabled before they retire².
If you are part of the full-time workforce, you should take advantage of health insurance and disability insurance, offered either through your employer or independently. Also, take advantage of your company’s retirement plan if it has one.
Of course, contributing to all these considerations – retirement and insurance – reduces your immediate available income. However, making such moves now may help you handle future expenses that would otherwise push you into a credit card crunch.
Provided by Jordan Jones, courtesy of Massachusetts Mutual Life Insurance Company (MassMutual)
¹ National Bankruptcy Forum, December, 2017
² The Council for Disability Awareness, 2018
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For more information, please see https://www.massmutual.com/planning/financial-literacy