Press-Republican

June 14, 2013

Editorial: Ways to reduce credit-card debt

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Press-Republican

---- — Americans are hip-deep in credit-card debt, and that makes digging out of national and international economic misery still more difficult.

It’s hard to build new financial equity when we’re devoting so much of our money to paying off the old.

According to CardHub.com, a marketplace for online credit cards operating out of Arlington, Va., between the beginning of 2011 and the end of 2013, U.S. consumers will have accumulated almost $130 billion of credit-card debt.

Americans began this year with a $32.7 billion paydown of debt and will end it having not only reacquired that amount but having also adding $46.71 billion on top of it, CardHub.com predicts. The first quarter is typically robust for credit recovery because of salary increases, bonuses and tax refunds.

The average household currently has $6,591 in credit-card debt.

Card Hub CEO Odysseas Papadimitriou recommends that households reassess how they handle their finances, shifting from satisfaction with debt accumulation to emphasizing saving and more responsible spending in the context of a flagging economy.

He offers five tips for managing debt, which we share here:

Make a budget, and stick to it: It’s difficult to spend within reason or plan savings without knowing how your monthly spending compares to your take-home as well as what it is allotted to. That is why you should rank your expenses, including debt payments, emergency fund contributions and other savings, and trim the fat if necessary.

Build an emergency fund: Your goal should be to gradually save about a year’s worth of after-tax income through monthly contributions to an emergency account.

Try the “Island Approach:” This credit-card strategy involves using different cards for different types of transactions, as if they were a chain of distinct yet interrelated islands. For example, you could transfer your existing debt to the lowest-interest card you can find in order to reduce monthly payments and get out of debt sooner.

Use the “snowball effect:” In order to become debt free at the least possible cost, attribute the majority of your monthly debt payment to the balance with the highest interest rate while making the minimum payment required on the rest. As soon as one card is paid off, concentrate on your next-highest-rate card.

Evaluate your job situation: In some cases, all the budgeting and planning in the world won’t be enough to solve your debt problems. You may need to evaluate whether there are higher-paying opportunities out there for people with your background or if you’ll need to acquire new skills in order to make yourself more marketable.

Unwieldy debt is bad for the country and worse for the individual.

In the end, it may just come to good, old-fashioned will power and strength of character.