Guest Post: Katie Bryan is the Communications Manager for America Saves, a national campaign involving more than 1,000 non-profit, government, and corporate groups that encourages individuals and families to save money and build personal wealth.
Borrowing more money than you can afford is costly in many ways. Americans spend well over $75 billion a year just on credit card interest and fees. That means that families who revolve credit card balances pay an average of $1,500 a year in interest and fees. If they saved that $1,500 in an account with a five percent yield, in 40 years they would have nearly $200,000! Taking on too much debt also lowers your credit score. That means you will end up paying higher interest rates on all your consumer and mortgage loans. A low credit score can also make it harder to rent an apartment, get utility services, and even get a job.
Too much debt isn’t just expensive. People with lots of debt often say they lack peace of mind. They worry constantly about paying off debts and making ends meet. The stress of these worries affects their family life, work performance, and other areas of their lives.
Are you in Trouble?
If you answer “yes” to any of the following questions, then you probably need to get your debts under better control:
1. Can you only afford to make minimum payments on your credit cards?
2. Do you worry about finding the money to make monthly car payments?
3. Do you borrow money to pay off old debts?
4. Have you used a home equity loan to refinance credit card debts, then run up new revolving balances on your cards?
The good news is that there is hope. With planning, discipline, patience, and maybe some outside help, almost anyone can reduce their debts and start to accumulate wealth.
How to reduce your Debts
The first step in getting out of debt is to stop borrowing. To do that, you have to stop spending more than you earn. So, make a budget and cut out any expenses you can. It may help to cut up your credit cards or lock them away in a safe place.
Set a Goal
• Example: I want to pay down $5,000 in debt in one year.
Make a Plan
• Figure out the most you can afford to pay each month to reduce your debts, then make those payments without fail. See if you can automatically pay your bills each month to ensure you make your payments on time.
TIP: If you have debts on more than one credit card, either pay off the card with the highest interest rate first and work your way down to the card with the lowest rate, or pay off the smallest loan first and work your way up to the largest. Once you’ve paid off your debts, don’t give in to the temptation to start over-spending again. Instead, take the money you were paying each month on your debts and begin to save it. That will give you a financial cushion the next time an emergency strikes.
Where to get help
In most communities, there are agencies that can help you manage your debts.
Consumer Credit Counseling Services
The most helpful and most widely available are non-profit Consumer Credit Counseling Services (CCCS). CCCS counselors can work with you privately to help you develop a budget, figure out your options, and negotiate with creditors to repay your debts. Call 1-800-388-2227 to locate the office nearest you.
Cooperative Extension Offices
Some national credit counseling non-profits, who provide advice online or over the phone, can also be helpful. However, others charge high fees for little service, so be sure to shop carefully. In many communities, Cooperative Extension offices offer workshops, home-study courses, and other services to help people manage their money, including their debts. Cooperative Extension offices are listed in the blue pages of the phone book under county government.
Are you ready to set your goal?
America Saves, a non-profit that encourages individuals and families to save money and build personal wealth, can help you develop your goals and take action. When you join as a saver, you’ll receive the following benefits:
• Free subscription to the quarterly American Saver newsletter.
• Free monthly e-mail newsletters with savings advice from national experts.
• Free access to the members-only Savers Tracking Tool to help you reach your goals.
• 100 bonus credits with SaveUp
Katie Bryan is the Communications Manager for America Saves, a national campaign involving more than 1,000 non-profit, government, and corporate groups that encourages individuals and families to save money and build personal wealth. Follow America Saves on Facebook and Twitter.