Most experts in personal finances will say that a little debt is okay but not credit card debt. The problem with it is that if you don’t pay off your balance each month, it begins to accrue, you’re charged more interest, the interest is added to your balance and before you know it, your debt has spun out of control. In comparison, using debt to buy a house is considered “good” debt because it will appreciate in value over the years. Using credit to buy a car could also be “good” debt if it’s required in your job. On the other hand, that new 48-inch flat screen TV would be considered “bad” debt because it will only depreciate in value and its technology may be totally obsolete in just a few years.
How much credit card debt is too much debt?
Experts say that if you’re carrying any credit card debt, it’s too much debt. This may be true but it doesn’t work for most of us. The sad fact is that most Americans spend more than they earn and most have to make up the difference with their credit cards. I saw one report recently that the average American is carrying about $7,000 in debt. You can bet that most of that is credit card debt.
Calculate your debt-to-income ratio
A simple way to determine if you have too much debt is to add up all of your recurring monthly debts and all of your earnings and then divide your earnings into your total debts. You’ll end up with a percentage point and if it’s much higher than 35%, the experts say you’re carrying too much debt.
Cut costs or earn more
There are really just two ways to fix that debt-to-income ratio. You can find ways to cut your spending considerably or you can earn more money. Many people have worked their way out of debt by scrimping and saving. I read recently the story of a woman who paid off $14,000 in debt in a little over a year. Among the things that she gave up was her gym membership, her tanning salon visits, dining out at restaurants, movies and vacations. She also found a way to earn an extra $500 a month.
Where to go for credit card debt help
If you can’t figure out how to pay off your credit card debt yourself, a good place to get help is a credit-counseling agency. Whether you go to one in your city or find one online, you will have a debt counselor who will review your income and spending and help you develop a payment plan. Once the two of you agree on a plan, your counselor will submit it to your lenders. Assuming they all approve it, you will no longer have to pay tåhem. Instead, you will send one payment a month to the counseling agency, which will take responsibility for paying your creditors.
Why a debt consolidation loan may not be good help
If you go online looking for credit card help, you’ll be overwhelmed with ads for debt consolidation loans. On the face of it this seems like it would be a good solution because you just borrow enough money to pay off all of your creditors and presto! You would have just one payment a month in place of the multiple payments you’re probably making now and it should be much less than the total of those payments. However, as the financial guru Dave Ramsay is fond of pointing out, a debt consolidation loan is kind of a con job because you feel that you’ve accomplished something when all you’ve done is move your debt from one set of creditors to a new one. Or to put it another way, you can’t borrow your way out of debt.
If you’re having a really bad problem with debt, we think the best credit card help is called debt settlement and it’s what we do. Debt settlement is better than either a debt consolidation loan or consumer credit counseling because it’s the only way to get your debts reduced. Our debt counselors have helped our clients save thousands of dollars in debt reduction and become debt free in two to four years. Call us today to learn more about debt settlement and how it could help you.