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Credit Cards

Credit Cards

Too many American families are burdened with credit card debt.  The average credit card debt per resident adult in the USA according to the G19 report , from the Federal Reserve on consumer credit in October 2015 was $3,766, another increase.

Most important, is the story behind these statistics. And that story is the opportunity cost associated with credit card debt.  Quite simply the opportunity cost, which I believe is more painful than the monthly interest charge, is the chance to productively use the money spent on interest charges.  Productive use of your capital helps you achieve your financial goals.  Money expended on interest does not grow your wealth and limits your ability to achieve your financial goals.

So, if you are saddled with credit card debt, you need to address that situation.  The debt is a very serious obstacle to your financial goal success.  Please get serious about addressing this issue.  The first step in repairing this situation is to understand how bad it is.  You do this by listing the credit card debts; I suggest you list them, starting with the highest interest rate card, as follows:

Card Interest Rate Balance Minimum Payment Actual Payment Target date for full payment

Now that we have a picture of ‘how deep the hole is”, we can make a plan to climb out of the hole.  This is going to take some time and discipline.

There are basically two methods to eliminate this debt:

  1. Pay off the highest interest rate cards, as a priority
  2. Pay off the lower rate or lower balance cards, as a priority.

Pay the minimums on all cards, except for your first priority card.  When that card is paid off, take the money that was being applied to it, add those funds to the minimum payment on the next card in the list.  Repeat the process, until all debt is eliminated.

It is important to set a reasonable target date to pay off the debt.  Too many Americans have unrealistic expectations of paying off the credit card debt in unreasonable time periods, thereby setting themselves up for failure.  There are calculators on the web at http://www.bankrate.com/ and other sites to help with this.  I also have financial planning tools that can help with this calculation.

Arithmetically, the best financial solution is to implement option 1, since the higher interest rate is causing you the most financial pain. If you are hesitant, for any reason, to take this approach, then by all means, start from the bottom of the list, with the lower interest rate debt and start eliminating that.  The important thing is to do something, the credit card companies are NOT interested in reducing this debt for you, you must take the initiative.

Credit card debt is like many other aspects of our financial life, no one is looking out for you, you must look out for yourself.  Please take action to eliminate this debt and empower yourself with the resulting opportunity to use these funds productively for your family’s financial goals.