What are the major contributors to your credit card debt?
According to a new Experian report, Americans have an average of $6,500 in credit card debt. Which expenses are the major contributors to that balance though, you may ask?
23% of Americans surveyed in that study say that purchasing basic necessities is the largest contributor to their credit card debt. That includes rent, utilities, and groceries. Another 12% say that medical bills constitute the majority of their debt.
Cost of Living Going Up
This increasing debt can be attributed to the rise of living costs. A couple of decades ago, middle class life was 30% less expensive than it is today. The cost of college has skyrocketed, in addition to housing and child care.
The cost of tuition at public universities more than doubled in the last 20 years. In some cities, housing prices even quadrupled, turning most millennials away from home ownership.
It’s now more common for millennials to be scraping by, living from paycheck to paycheck. 57% of Americans have less than $1,000 in savings and more than 70% say they will encounter financial difficulty if their paycheck was put off by a week.
Spend Responsibly
For some, it may come down to spending on non-essential items such as entertainment and luxury items. According to Schwab’s Modern Wealth report, Americans were found to spend an average of $480 a month on non-essentials. This included dining out, entertainment and nightlife, luxury items and vacations.
It is always prudent to keep your balance low, as it can get expensive to let it roll over. The average credit card APR starts at 17.73%, and with such high rates monthly balances can quickly add up.
Take for example that you have a credit card balance of $6300. If you’re charged the average APR and you make minimum payments (3% or $190), you would stay in debt for over 17 years and pay more than $5,800 in interest.
Reducing Your Debt
If you’re looking to pay down your balance quicker, you could open another credit card that allows you to transfer over your balance while offering an extended 0% APR period.
Some of these cards do charge a 3%-5% fee to transfer your balance so watch out for that. An ideal option can be the Amex Everyday, which offers a 0% APR on balance transfers for 15 months and no transfer fees.
Saundra Davis, a financial coach and adjunct professor, has this to day about reducing personal debt. “There are only three things you can do if you are not happy with your financial situation: make more, spend less or a combination of the two. there is no other magic.”
The first step towards doing this is to be responsible and accountable for your purchases. Set an achievable goal that is realistic. It’s not feasible to go from not saving anything to suddenly saving $500 a month, says Davis.
The trick is to start small. It’s easy to start saving $5 a week, or cooking homemade meals more often and depositing that money you otherwise would’ve spent on going out.
You can transfer this practice into your other purchases as well, such as going out with friends, travel and buying luxury items. It really is about cultivating that shift in mindset and developing new habits.
As always, if you need to talk to an advisor about creating a savings plan, the Financial Helpers are only a call away.
