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College is an excellent time for students to begin learning about responsible money management and credit. By using credit cards responsibly, students can graduate with no debt and a top credit score that will help them buy a house, get a business loan, or save money on interest in the future.
Unfortunately, students without money-management knowledge and experience can easily build up a high balance on credit cards. In 2016, more than 30% of students carried an average credit card balance of $2,573 on top of their rising student loan debt that will need to be paid back.
Although that amount is lower than the average balance of $8,184 for credit cards in the United States, it can still be a scary number for students and their parents alike. Debt has also been steadily increasing, especially after declining in the wake of the Great Recession.
Finding the average credit card debt is a challenge, simply because not every American adult holds credit cards, and households with no credit card debt can alter the average. The more accurate way to determine the average credit card debt is by examining only American households and individuals with credit cards.
We can conclude that adults with credit cards in the United States have an average of $5,089 in credit card debt (1.023 divided by 201 million), and the average revolving debt is $8,184 (1.023 divided by 125 million).
For an individual, debt isn’t necessarily an issue. With the credit card debt approaching more than $1 trillion, however, and students adding to their considerable burden with upcoming student loan debt, we need to review the contributing factors.
Wages have yet to reach the increasing cost of living every year, which is the single greatest cause of increasing credit card debt. With inflation, a dollar doesn’t go as far as it did 20 years ago, causing too many people to live paycheck to paycheck to survive.
Many working Americans work full time and still don’t have money for basic necessities, which leads them to use credit cards to get what they need. For college students, this situation is even more of an issue, causing a few $5 cheeseburgers to turn into hundreds in debt after interest.
America’s debt increased in the 2000s. Lenders began to offer loans and credit cards with much higher interest rates to borrowers with poor credit scores. These aggressive practices led to an increase in delinquencies, which in turn caused more people to turn to credit cards to cover basic necessities.
The amount of credit card debt that’s healthy depends entirely on how you use it and how you pay it off.
Credit card users consist of two types: revolvers and transactors. A revolver is a person who carries debt from month to month, increasing the interest and debt over time. A transactor is a person who pays off the balance each month and never pays interest.
Transactors save money, but it’s not always necessary. Credit cards are valuable for emergencies and need to be used on occasion. Sometimes choosing to accrue a small amount of interest is worth the tradeoff for the longer time period to pay.
Unfortunately, one of the biggest credit myths is that it is better for your credit score to have a balance from month to month. Carrying this balance not only leads to more interest payments and a higher cost for your initial purchase, but it also has no positive impact on your credit score.
Dealing with debt is never fun, but it’s always worth it to help a student get on the right track and prepare for the future. Getting on the right track will take some lifestyle changes, but given that many students believe they weren’t adequately prepared to responsibly manage credit, it’s not a bad thing.
Discover the following three practical strategies for eliminating credit card debt.
Balance transfer credit cards allow you to transfer your balance from one credit card to another. While this idea may not seem like a smart option for someone with high credit card debt, these cards tend to have lower interest and allow you to pay 100% of your principal debt each time. This approach can help you get out from under debt much faster, instead of paying mostly interest and seeing the balance stay the same.
Balance transfer cards also allow you to combine debts from multiple credit cards within the preset credit limit. Instead of worrying about multiple accounts and minimum payments, as well as different interest rates, all the credit card debt is grouped into one monthly payment with a lower interest rate.
Minimum payments basically cover your interest month to month. If you’re paying only the minimum amount due, you’ll pay out quite a bit of cash before seeing your debt move. When possible, pay as much as you can over the minimum to reduce your interest payments and pay off the card much sooner.
Late payments are a big deal, often leading to considerable fees and less money you can put toward your debt. Set up reminders in a calendar, enroll in automatic payments, or get alerts from your credit card company to ensure you never make a late payment.
If you’re trying to resolve credit card debt, Solvable can help. We offer personalized education and access to debt relief providers to assist you in getting your credit on track so that you can look forward to a debt-free future. Contact us today to see what we can do for you.