Since 2000, Americans' outstanding credit card debt increased 18 percent, according to figures tracked by the Federal Reserve.Yikes! If you make $40,000/year gross income, you probably take home $30,000/year or $2,500/month. If you pay the bare 2% minimum that credit cards require you to pay, you'll pay about $170/month, or more than $2,000/year. With a rate of 18%, you'll pay off less than $500 of the balance during the next year. All this is assuming you start off with the average debt of $8,650.
During the 1990s, the amount of debt racked up by consumers more than doubled. One survey puts the average credit card balance among low- and middle-income households at $8,650. Collectively, our debt situation continues to worsen over time.
What would it take to pay off that debt in a year? About $795/month. Put that another way, about 1/3 of your take-home pay would go to paying down credit card debt to pay off the average debt of Americans with the average amount of income in one year. Paying the typical minimum of 2% the balance or $10 would take you 611 payments. If you prefer to think of it in years, it would take 51 years.
At a 25% interest rate, not uncommon with credit cards, it would take $850/month to pay that balance in one year. If you pay the 2% minimum on the card, the payments would be about $2,100/year. And guess what? Your balance would actually increase about $100. You'd never pay off the balance paying the minimum.
So, now that you're scared out of your wits, how do you get the debt-monkey off your back? Bankrate has four suggestions, all of which have been discussed before, but should be again.
1. Commit to change
2. Spend less
3. Prepare (and stick to) a budget
4. Pay yourself first
Follow those four steps every month and you'll pay off the credit card much faster than 51 years. Eventually, debt will crush your finances if you let it get out of control. Pay off credit cards every month and you won't have to worry about it.