Published June 6, 2019|2 min read
Credit card debt is intrinsically tied to financial health. It can snowball quickly and is often incredibly hard to get rid of.
“The challenge with credit card debt is the high interest rates,” said Howard Pressman, certified financial planner and partner at Egan, Berger and Weiner. “If there isn't a lot of debt, it's not the worst thing for your finances. But if there is a lot, it can really restrict you from reaching other goals.”
Most people incur credit card debt because they are spending more than they are earning, said David Haas, certified financial planner and president of Cereus Financial Advisors. If too much of one’s income is spent on credit card payments, there’s no room left over for savings or other living expenses. Too much debt can keep you from preparing for emergencies.
Not only does credit card debt lower your credit score, it may prevent you from getting the best rates on other loans, like mortgages or car loans. It can also affect your insurance premiums — here’s how.
The average American has a credit card balance of $6,506, according to credit bureau Experian. We looked at how credit card debt affects people in different areas by comparing the average credit card debt level to median income in each state. This gives us an idea of the size of the average debt burden by state and how able the average resident is to pay it off.
“If you are only making minimum payments on your credit card and have interest-only loans, then you are definitely not financially healthy,” said Haas.
To begin dealing with debt, first understand how your income is spent. The easiest way to track spending is with a budget. We have a downloadable spreadsheet here and reviews of popular budgeting apps.
Once you determine the source of the credit card debt, set up a plan to pay it off. One way is by paying off the smaller debts first and then tackling the largest last, known as the “snowball” method. Here are other ways to pay off debt.
If lowering expenses isn’t an option, consider increasing income with a different job or a side hustle. Want more financial advice? Sign up for our money newsletter.
Data sources: Credit card balance data comes from a survey by Experian. U.S. Census Bureau for median household income.
Image: JP Valery
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