Taking a swipe at credit cards

April 8, 2014 

Struggling with credit card debt? Federal Reserve statistics show indebted households now carry more than $15,500 in credit card debt.

Debt is a big problem for college students and recent grads, too. Scary, but the average college student now carries more than $3,100 in credit card debt, and the average college graduate owes about $30,000, according to College Access & Success' Project, on student loans.

It's easy to get into credit card peril. Consider what happens when using a credit card to buy a $1,500 laptop. It will take you about 9.8 years of making minimum payments, 3 percent of the monthly balance, to pay for the laptop. Worse, yet, you'll make payments totaling $2,685 and spend $1,185 on interest, at 17.9 percent -- obviously, a costly mistake.

Much financial stress could be avoided if parents and schools taught young people not to use credit cards for items they can't afford. Adults can have better futures by paying cash and not carrying balances on credit cards.

Bank of America, Capital One, Chase and other big banks, in my opinion, really don't want you paying off your balance. Consumers who passively pay the minimum payments are their best customers because they fatten bank profits.

Getting out of credit card debt requires you to make much more than minimum payments on the bank's monthly statement. For those drowning in quicksand, here's a plan to dig out of debt:

• Put Extra Funds on the Smallest Balance: Make a list showing how much you owe on each credit card. Include interest rate and minimum payment. Now pay minimum payments on all cards except the one with the smallest balance. Increase your payment on the smallest card as much as possible. When that card is paid off, start using your extra funds to start paying off the next debt. Keep doing this until your last debt is paid. A strategy of putting extra money on your smallest debt allows you to

get out of debt sooner.

• Increase Income: Work overtime. Get a part-time job. Sell items on EBay or Craigslist. Use holiday cash, tax refunds and bonuses to pay down even more debt.

• Transfer Balances: Eliminate debt faster by moving balances to a credit card with a lower interest rate. Don't get sucked into low teaser rate cards, though. Rates might soar to 20 percent or higher once the introductory low, gimmick rate ends. Remember your goal is paying down principle.

• Cut Spending: Bring your lunch to work; drive an older car without a car payment; buy clothing at an outlet or EBay.

Take comfort in knowing that millions of hardworking and successful people also have credit card issues. Reducing your credit card debt to zero may take you a few months or a few years. Look forward to living a debt-free life.

Jim Germer, a Bradenton CPA and a financial advisor with Cetera Financial Specialists LLC, can be reached at (941) 746-5600 or jim.germer@ceterafs.com.

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