How to Understand Credit Card Debt

High credit card debt is a burden more Americans share daily. Since the turn of the century, average credit-card debt per household has more than doubled to $19,000. It is not just young couples who are starting a family and are first time home buyers, but the amount owed by people of retirement age that has nearly doubled over the past few years. Easier access to credit may be the fault, but also today, “I want what he’s got,” and staying ahead of the Joneses is also adding to the problem. There is no shortage of repayment plans available, but you will never get out of debt unless you change your attitude toward money. Your current spending behavior is what contributed to you getting into debt in the first place. Follow these strategies and they will provide some insight in solving your credit card dilemma.

First you must admit that you are the problem. Sometimes the reason you piled up debt is obvious and out of you control such as a medical emergency or a layoff. But it is often a series of smaller expenses that seem like sensible indulgences at the time but ultimately add up to trouble.

The next step is to stop the behavior that got you into trouble. Do not count on you willpower, there are things that you need to accomplish. Take the credit cards out of your wallet and lock them in a drawer to create a physical barrier between you and spending. Freeze your debt by placing your credit cards in a plastic bag and put them in your freezer. By the time your cards thaw out you may not have to make that purchase anymore. These two methods will create a cooling off period from your usual behavior of constantly spending on items you do not need. One other method to take into account is for big purchases, save money in labeled envelopes and delay buying until you have the cash required.

Make success as simple as possible. Once you stop going further into debt, start making a dent in the amount you already owe. You are more likely to make steady progress if you have some sort of plan to follow and not just relying on willpower. The best strategy, if there is a large spread in the interest rate in your cards: Pay off your highest-rate debt first, making the maximum monthly payment you can afford on that card and paying the minimum required on the others. By adding more to your minimum payment you will automatically start paying down the principal faster. Repeat the process with the next highest rate card.

One other method that has a great impact in paying down your credit card debt is pay off the card with the lowest balance first. Add more to your minimum payment which in turn pays your balance off sooner, than when the balance is paid off, use that money to pay off your other credit cards. The results feel more meaningful, and you will get a psychological boost from paying off a card completely.

Be very cautious on the easy way out. To save on interest charges, pay off all of your credit cards with a home equity loan. The strategy looks good in theory but you need to be cautious about using low-rate home equity financing to pay off your cards. Lower finance charges will not solve your debt problems if you do not also change your behavior. Beside when you payoff your credit card debt with your home equity, you still have the debt. And unlikely credit-card debt, home-equity debt put you house at risk. If you continue to use your low balance credit cards again, you will end up worse off than before, owing money on both your cards and your home.

Finally, as bad as your debt may be, do not use it as an excuse to ignore the rest of your financial life. Set a little money aside in a savings account for an emergency fund so when the next time an emergency arrives you have to funds to use and not start borrowing again to recover. Do it now, use cash, not credit for your everyday purchases. People spend less, on average, when they pay with cash and not credit.