Americans went on a spending spree in 2017, racking up the most credit card debt since before the Great Recession. For the first time in history, we now owe more than $1 trillion on our credit cards! Financial advisor Brad Allen talks with Milwaukee’s WTMJ-4 to discuss 4 tips for paying off debt:
1. Take Inventory
First thing’s first – take inventory to determine who you owe and how much. A debt worksheet can help you keep track of balances, due dates, minimum payments and interest rates. You may want to set up auto-payments to make sure you don’t miss a payment. Getting hit with a late fee only adds to the problem.
2. Get a Lower Rate
One of the main reasons credit card debt is so difficult to pay off is because of the high interest rates – the average credit card APR (or annual percentage rate) is more than 16%.
3. Spend Less Than You Earn
Be disciplined to spend less than you earn. First, you need to track your expenses to see what you spend your money on. Then, you can cut the things you don’t need. And never use credit as a substitute for cash. Your credit card must be paid off every month. If you can’t afford something, wait until you can or choose to do without.
4. Start a Snowball
Once you’re ready to start attacking debt, where do you start? We recommend starting with the card with the lowest balance. Devote as much as you can to that card, while still making minimum payments on all your other debts. Once that one is paid off, start on the second-lowest balance. Just like a snowball rolling down a hill, the key is building momentum each time you pay off a debt.
Paying Off Debt or Saving for Retirement?
It can be a difficult balancing act, but you really need to make both a priority. You cannot put off saving for retirement. So, if you’re prioritizing paying off debt, at least put enough money into your 401(k) to get the full match from your employer. If you’re struggling with where to start, talk with a financial professional.