Many Americans often struggle with debt. Debt relief or becoming debt free is merely wishful thinking. However, knowing the statistics and knowledge can help anyone start on the path to becoming debt free. Within the financial world of the American household, credit card debt holds great importance.
Credit card debt is the most common debt found in any household debt statistics. The household debt average is over 90,000 a year. In 2015 the average credit cards debt amount was 15,762 a year per household. Household debt statistics show that 35% of the debt within the home was credit card debt. Americans struggle daily under the pressures of debt. Because of this many people only make the minimum payments which can lead to paying more money to the creditors because the minimum payment covers mostly the interest of the credit line. But there is a way out and becoming debt free is not just wishful thinking. Any person can become debt free with the right knowledge, patience, and the correct and most direct approach to reducing their debt.
Steps to Get Started Being Debt Free
With household debt average being so high many people feel overwhelmed and can only meet the minimum payments required. The question of how to get out of debt becomes a complex problem, many feel overwhelmed to answer. There are many steps to getting out of debt. Here is the way to start:
- Work up debt to income spreadsheet. List amounts owed, payments, and balances
- Put together a spending budget.
- Freeze your credit cards. By cutting off the ability to use you can pay it off quicker.
- Decide on which method you would like to use to pay off your debt. The snowball method or the stacking method.
- Renegotiate interest rates. This could mean consolidating debt and even if need be working with debt solution companies to bring down that debt.
- Start saving
Explaining the Steps
How to get out of debt, starts with the first step, knowledge. Know what your bills are. This seems simple enough, but for many, this step allows for organization. Once you know this you can then put together a budget that meets your needs. A budget is your key to success and by freezing or not using your credit cards and only spending within your budget you will continue to lower your debt to income ratio. Remember cash is always king when you are on a budget. If you do not have the cash to buy it then you don’t need it. Keeping cash on hand allows for the temptation of credit card usage to erase from your mind. Household debt statistics show that Americans have at least one or two credit cards with extremely high-interest rates. By renegotiating your rate or consolidating to another card with lower interest rates you can save money. For example, if one credit card as an interest rate of say 25% and another has one of 10%, transferring the balance from the higher credit card onto the lower credit card will allow more of your payment to be put toward the principal balance.
The Debt Methods
Now you must decide how you will pay off those debts. What method works the best for you? There are two common methods that are successful in becoming debt free. The snowball method and the stacking method. Each method has its good and bad points, it all depends on the type of debt you have versus the income you have coming in. For example, if you feel it is within your budget to pay off the smallest debt first continuing from smallest to largest, you are building up to paying off all your debt. Thusly, you are building a snowball of income. By the time you have all the smaller debts paid off, you will have a good amount to start paying down those larger debts. The other way is the stacking method which is paying off those large debts first then the smaller ones. For example, you have a large debt, you decide that this bill will be paid off first. So, you might make minimum payments on the other portions of your debt while you pay this one off. Then you work your way down through the debt paying largest to smallest.
Once you have paid off your credit debt and you are officially debt free, start saving. Put that extra money in a high-interest savings account, invest it, or simply tuck it away for emergencies. This way you can save up the money for high expenditures you might acquire or desire later on. Having the money on hand will keep you from utilizing those credit cards and keep you out of debt. Because getting debt free is just part of the goal, you want to stay that way.