Somewhere deep in the headquarters of your credit card issuer, is there a plaque with your smiling picture labeled "Big Spender of the Month?"
Perhaps not, but if you are consistently carrying a balance on your credit card, your spending is too big for your income. You are likely to be racking up interest charges and assuming greater credit card debt — and a recent survey suggests that you have an increasing amount of company.
The National Foundation for Credit Counseling® (NFCC) recently released their annual Financial Literacy Survey, which shows a disturbing trend with respect to credit card debt. More families are carrying credit card debt over from a previous month (39% in 2017 compared to 35% in 2016) and 16% of households are rolling over at least $2,500 in debt each month (compared to 14% in 2016).
The NFCC findings are in line with the New York Fed's last Quarterly Report on Household Debt and Credit. According to the Fed, credit card balances increased by $32 billion in the fourth quarter of 2016, a 4.3% increase over the previous quarter.
Given that credit card interest rates can be 20% or higher, households can easily incur annual interest charges in the hundreds (or even thousands) of dollars. Credit card interest rates are expected to rise even further, thanks to the Federal Reserve's stated plans to raise baseline rates to guard against inflation.
If your credit card balance is consistently increasing, there's a pretty fundamental reason why, according to Adam Carroll, Founder and Chief Education Officer of National Financial Educators: "Someone who has massive amounts of credit card debt, they're just an over-spender." It's simple math; on a regular basis, you spend more than you make.
Budgeting is the first step to redemption. Carroll suggests using the strategies of "offense" and "defense" to address both sides of the budget battle. According to Carroll, "Great offense is, 'How do I make more money?'...Defense is, 'How do I decrease my monthly expenses to the absolute ridiculous?'" Since you are starting out with a deficit, it's important to cut expenses to the bone and consider all sources for making money, even one-offs such as selling items that you don't need. The free Debt Optimizer by MoneyTips can help you to consolidate your debt.
If you qualify, you may be able to take advantage of a balance transfer card to buy some time and help you pay down your debts. Sean McQuay, Credit and Banking Expert at NerdWallet, explains: "These [cards] enable you to move your debt from the card where you have the debt to this new balance transfer card. That new card waives interest fees for the first 12 to 21 months."
You still have to pay off the debt, but during the introductory period, you do not incur any interest charges on the balance that you carry over. That allows you to apply the surplus you get from superior budgeting directly toward paying the principal debt. However, it is important for you to pay down the debt promptly, because once the introductory period ends, the interest rate will increase sharply — and failing to control your spending will put you in an even worse situation.
With effort, you can become what credit card companies call "deadbeats" — not because you don't pay your bills, but because you do pay them in full. As Carroll explains, people who pay off their bill every month are known within the industry as deadbeats "because the credit card companies make no money on them at all."
How often do you get financial advice that encourages you to become a deadbeat? Eliminate your credit card debt, and you can join the debt-free deadbeats and enjoy the irony of that status.
If you want to reduce your interest payments and lower your debt, try the free Debt Optimizer by MoneyTips.