What To Do If You Haven’t Avoided Credit Card Debt
Credit card debt will eat you alive—but that stops here.
Rumor has it the average American has around $6K in credit card debt. While that number may be exponentially lower than, say, your student loan debt, it’s still substantial. You could buy a (very) used car with that type of cash.
And while we can joke about being part of the majority and how misery loves company, credit card debt can actually be detrimental to your wealth-building journey.
No more guilt-inducing budgets, crossing your fingers and hoping you’re making the right decisions, and swiping through life one YOLO charge at a time.
Buckle up. Let’s start with the why.
What credit card debt does to your wealth
If investing compounds your wealth in a positive direction, debt has the exact opposite effect.
There’s a TikTok that went viral recently. It featured a girl encouraging people to use their credit card now because you’re manifesting a more financially successful version of yourself to pay off the debt in the future.
Issue #1: going to social media for financial advice
Issue #2: math isn’t magic
While these videos are fun to watch and laugh at from a distance, you cannot take them seriously if you want to be able to accomplish the goals you have for yourself guilt-free.
Should I pay down CC debt or invest?
There’s really only one answer to this question if you’re paying interest on your credit card debt right now: You should pay down your CC debt before starting to invest.
Generally, you can expect about an 8% return on a diversified investment portfolio.
Credit card debt can run up to nearly 30% in interest.
While the earlier you start investing, the more successful you’re likely to be, the interest from credit card debt can eat away at the money you’re building through investing…and then some.
8%-30% is a negative number. And a big one, at that. You’re going in reverse.
The best debt paydown strategies
If your debt is “manageable”. Like, completely have the ability to pay it off in one year type “manageable”, here’s what you’re going to do.
Find a credit card with a 12-month 0% APR introductory rate. Transfer your accumulated debt to the card with 0% interest. Then, split the total of your debt up over 12 months to find your monthly debt paydown amount.
Boom.
By the time the introductory teaser rate expires, you’ll have paid down your credit card debt with 0% interest.
But that’s not always possible with credit card debt. Sometimes we rack up way more than we can pay off in one year. Or maybe you’re dealing with debt spread over a few different cards with different interest rates. If you find yourself in this boat, it’s time to utilize one of these two methods:
The snowball method
With the snowball method, you pay off the smallest balance first, then tier your balances from smallest to largest. It’s all about momentum here. Since the idea is to focus the bulk of your payment on the smallest debt first, you’ll get a small win with each credit card you pay off.
You can also cut the number of bills you have to pay off faster. Think of it this way: Once you pay off one card, it’s out of your life for good. And one less minimum monthly payment means you’re one step closer to financial freedom.
Not to mention you’re more likely to stay disciplined with this method. When you tackle the easier cards first, you’ll feel like you’re making progress. And progress that’s already started is harder to stop.
The avalanche method
With the avalanche method, pay off the debt with the highest interest rate first. If you tier your debt obligations from highest to lowest, you’ll ultimately come out ahead dollar-wise because you’ll get out of debt with fewer dollars overall. Cards with higher interest rates accrue debt more quickly than cards with lower ones. The sooner you get rid of high-interest balances, the faster you’ll start making a dent.
If you could use a little help balancing your debt paydown with your short-, mid-, and long-term goals, it may be time to phone a friend.
The Bottom Line
So, you've got a bit of a spending problem, huh? You’re not the only one. No judgment. We've all been there. But let's be real: credit card debt is a financial black hole that's sucking the life out of your wallet.
Don't let those high-interest rates and late fees ruin your future. Take control of your finances, pay off that debt, and start living the life you deserve.
Key Takeaways
Credit card debt is a serious financial burden. High-interest rates can quickly spiral out of control.
Prioritize debt repayment: Focus on paying off high-interest debt before investing or saving for other goals.
Consider debt consolidation: Consolidating your debt into a lower-interest loan can simplify your payments and reduce interest charges.
The F. Word
Ready for some real talk on how to master your money? Pull up a chair and pour yourself a glass.
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