Consumer Credit Counseling Service News Articles

80% of Americans are in debt.

$13.95 trillion (yes, with a “t”.) This is the total amount of debt from the most recent report on household credit and debt. (Federal Reserves of NY)

Read those again. Are you stuck in debt? There are warning signs.

• YOU BELIEVE DEBT IS PART OF LIFE

Nope. Debt is the result of wanting or needing something that you don’t have the finances to buy at the moment. Simply put.

Solution: Don’t WANT debt so badly! Keep close tabs on your spending to see how much you’re relying on debt to maintain your lifestyle.

• YOU USE CREDIT TO COVER EMERGENCIES

When you don’t have cash reserves to cover unexpected expenses, you might have to rely on your credit cards. Then you end up paying more than the original emergency if you don’t pay off the balance before interest charges begin.

Solution: You can avoid this by creating an emergency fund. Ideally to cover 6 months of living expenses. If necessary, start by setting aside a little each month, then increase the amount as you can. And remember adequate insurance to cover catastrophic events: think medical event or car accident.

• YOU MAKE ONLY MINIMUM PAYMENTS

It is hard to eliminate debt if you’re only paying the minimum you owe. AND becomes easily unmanageable as interest accrues and you are still only able to pay minumum amounts. Example: A $5000 balance on a credit card with 17% interest rate and making the minimum payment of 3%, will take you 189 months or 14 YEARS to pay off that debt.

Solution: Increase the amount you pay. You can cut the payoff time and interest in half by boosting the payment to at least 5% of your balance. A tiny 2% difference can make a huge impact.

• YOU ALLOW EXPENSES TO RISE WITH INCOME

Failure to keep your expenses steady when your income goes up creates a vicious cycle, especially if you are still carrying debt from days when you were earning less and now are taking on more debt to help pay for the bigger house, car, etc.

Solution: Identify goals and review your spending to see if it matches your priorities.

• YOU USE PAYDAY LOANS

If used within the short term intended, then maybe you wouldn’t be stuck in debt. HOWEVER, the danger is that the interest rate is so high (average: 391%) that the debt then amounts quickly if you use the rollover feature. These are VERY DANGEROUS loans.

Solution: Make a plan to quickly payoff the payday loan even if it means a second job. Take steps then to improve your credit so you can qualify for lower rate conventional loans moving forward.

• YOU DON’T TRACK YOUR FINANCES

If you aren’t paying attention to where your money is going, it’s easy to overspend and not have enough for unexpected expenses or your regular bills, which puts you into debt and keeps you there.

Solution: Stay on top of your finances by checking your accounts daily. Use your phone or tracking app. You can’t change what you can’t see, so it’s essential to actually look at your money regularly.

• YOU DISREGARD YOUR CREDIT SCORE.

The lower your credit score, the higher the interest rate. SO the harder to pay off your debt.

Solution: Commit to improving your credit score. Pay all your bills on time, keep credit utilization rate below 30% at minimum (or better use/pay off balance monthly), use a credit-building loan to boost your score.

• YOU’RE NOT MAXIMIZING YOUR EARNING POTENTIAL

There are only so many ways to reduce expenses, eventually you have to make more money to get ahead financially and get out of debt. Think outside the box.

Solution: If you can’t ask for a raise or find a higher paying job, then consider a side job. Think: Pet sit, plasma donation, freelance.

It takes hard work to get out of debt and stay out of it, but when you do, you take back control of your life!

WATCH FOR PART 2: 10/14/2020