With the increased reliance on credit cards in the past two decades, it’s not surprising that a 2004 report concluded that the average American household was now in debt an average of over $5,000. When coupling this debt with rates as high as 17-20%, it’s easy to see why many are caught in the vicious cycle of what is becoming a credit crisis in America. If you’re caught in this cycle, and the data concludes that you are, hopefully the following information will shed some light on what you can do to slowly turn the tide.
To understand why debt continues to mount unabated, you need to understand how interest rates work. Interest in generally expressed as an annual percentage, and is the fee that must be paid back in addition to the actual loan given. It’s quite easy to see that taking on any loan, while perhaps a short-term and necessary solution does nothing but cost you more and more money down the line. With many people taking out second lines of credit to help cover their first line, this downward spiral continues to spin faster and faster.
Lines of credit are most commonly found in credit cards. Once a luxury that few people could attain, credit cards are now held by a large percentage of American households, and the correlation between increased credit card use and increased debt of households is obvious, with the credit card and insurance companies reaping all the profits at our expense. Credit card debt account largely for the $2.5 trillion dollar consumer debt America has found itself in in 2008.
When it comes to paying off credit lines, every bit helps and the tendency or necessity of only making minimum necessary payments only continues to hurt debtors down the line. Through the simple act of paying an additional $10 per month towards your debt, you’re avoiding the interest on that amount each month, and the further interest that would’ve resulted from that additional interest. This propagating interest is what causes debt to continue to build unchecked. Often debtors can do little more than break even with their payments, ensuring they at least aren’t going further into debt.
To draw a comparison between debt repayment and investing, which by the way is a great way to kick start any debt and credit card consolidation plan going think of your debt return as an investment in the market that will return an annual amount of 17-20% or whatever the interest is on your loan. If you could get that kind of annual return on an investment you’d be thrilled. By paying off your debt to the best of your ability you are in effect making or saving yourself this amount of return in the future, which is a big deal. Just as the snowball builds steam rolling downhill one way, with the right effort you can eventually stop that snowball in its tracks and slowly turn the tide and getting rolling in the right direction for you. You’ll find that once the ball is rolling it becomes easier and easier each month to get your debt down and continue to lower your interest fees.
As hard as it is to get that ball rolling, it’s a simple proven fact that if you don’t put some pressure on it to try and turn it around it will simply steamroll you and never look back. Always be on the lookout for any little thing to help you get the edge on paying back that loan. If it means taking out another loan with lower interest to pay it off, or biting the bullet and selling a second car or similar convenience to pay it off, then it should be done without hesitation. Credit cards are convenient no doubt, but the cost is finally being felt by Americans. Getting yourself out from their grasp and never looking back is something you simply can’t afford not to do.