Sherri Richards, Published March 17 2014
Financial Wellness: Dealing with debt
When it comes to your finances, that means dealing with debt.
Owing money for past purchases hamstrings your future. Accumulating interest eats away at your income.
An analysis of household debt at NerdWallet.com shows Americans owe the most on mortgages, and an increasing amount on student loans. Credit cards are the third-largest source of household debt.
But in most cases, that’s the debt you should tackle first, as it’s more likely to fall into that “toxic” category.
Interest rates are typically higher. There are no tax deductions, as is the case for mortgages or student loan interest.
Also, the smaller balances mean you can get rid of that debt faster – allowing you to then snowball your payments toward that student loan debt, and lastly, your mortgage.
NerdWallet’s analysis shows 46.7 percent of U.S. households have a credit card balance. The average U.S. household credit card debt is $15,252 among households that owe money. Spread across all households, that number drops to $7,115.
And the median debt (the amount in the middle) for indebted households is $3,300 in consumer debt, a very manageable figure.
If you’re ready to deal with your debt, here are some tips for tackling credit card debt:
You don’t necessarily need to close the account (unless that’s the only way you’ll keep your fingers out of the credit cookie jar). Just cut up the card, lock it up or freeze it in a block of ice, whatever it takes to stop using it.
If you’ve got debt on several cards, focus extra payments on one balance until it’s paid off. Most financial experts would tell you to pay more on the card with the highest interest rate first. An alternate tactic is to pay off the smallest balance first.
Another option to reduce your interest rates is to transfer your balance to a lower-rate card. Read all the fine print, though. Balance transfer fees could eat away all your savings. That low interest rate could expire quickly, leaving you with an even higher rate.
Debt consolidation companies will tell you to stop paying your credit cards and will ask for payment upfront, as well as a percentage of the discount they negotiate for you. It ruins your FICO score. Don’t go this route.
Rather, talk to someone with a debt management organization. These agencies can help you look at your financial situation and get you on a plan to pay off your creditors in three to five years. Their services cost you very little. One example locally is The Village Family Service Center.
You can find other reputable services at www.aiccca.org or www.nfcc.org.
Sherri Richards is a thrifty mom of two and Business Editor of The Forum. She can be reached at firstname.lastname@example.org