By Robyn A. Friedman
City & Shore Magazine
What’s in your wallet? Probably a lot of credit cards.
U.S. consumers racked up $89.2 billion in credit-card debt in 2016, pushing outstanding balances to $978.9 billion. That’s just $3 billion below the all-time record set in 2007, according to the latest Credit Card Debt Study by WalletHub, a personal finance website.
The average American household owes $8,377 to credit-card companies, an amount dangerously close to the average debt level in 2007 just before the Great Recession.
“Credit-card debt sheds light on the financial health of households across America,” says Jill Gonzalez, an analyst for WalletHub. “Considering that consumers have reverted to racking up almost the same amount of debt as they did in the pre-recession period, it’s clear that consumers tend to have a short memory when it comes to the dangers of debt.”
But all is not lost.
Here are some tips you can follow to achieve freedom from debt:
1. Make a budget — and stick to it. Eliminate unnecessary expenses like that daily latte, and prioritize debt payments, emergency fund contributions and other savings.
2. Create an emergency fund. Your goal is to set aside about a year’s worth of after-tax income.
3. Transfer balances to zero- or low-interest credit cards. Many credit cards have a fee for balance transfers — usually 3 percent of the balance — but some offer free balance transfers and low introductory interest rates. The lower the interest rate on your card, the faster you’ll pay it off.
4. Improve your credit. A higher credit score will help you save on everything from credit-card interest rates to homeowners insurance.
5. Pay off the cards with the highest interest rates first. WalletHub refers to this as “the Snowball Method.” The strategy is to devote the majority of your monthly debt payments to the balance with the highest interest rate, while making minimum payments on other balances. Paying off the higher-rate cards first saves money on interest expense.
6. Evaluate your job situation. Are there higher-paying opportunities available to you? Can you acquire new skills to become more marketable as an employee? An investment in yourself may do more than just help you eliminate debt; it can improve your overall financial situation.