Remember when renowned US Olympic swimmer Michael Phelps set the record for most gold medals earned by any previous athlete at the 2008 Beijing Olympics? He won 8 gold medals! 8! That is incredible!
Do you know what else is incredible? Consumers in America are setting some records of their own. U.S. total household debt rose by $193 billion to an all-time high of $13.15 trillion at the end of 2017! Credit card debt alone increased from $26 billion to $834 billion. You could certainly make an argument this record is more eye-opening than the Michael Phelps record.
There are two types of debt—good debt and bad debt. Good debt, also called leverage, is money you borrow in order to finance an investment such as home loans, student loans and car loans. Bad debt doesn’t really have another exquisite term attached to it because, well…it’s bad! Feel free to summon your inner Bob Ross to attempt to paint a positive sounding synonym for the term bad credit.
So how do you defy all odds and keep yourself out of debt? Well let’s find out, shall we?
Credit Card Overuse
You may not believe a rectangular 85.60mm x 53.98mm plastic, sleekly designed card is threatening, but what you may not know is that this card has the potential to bring about purchase addictions and bankruptcy to those who do not fear it. I’m sure the phrase “Don’t spend money you don’t have” rings a bell, right? The more times you swipe your credit card (or scan your card via Apple Pay/Samsung Pay for you millennials), the more debt you will accrue.
Whether it be now or in the future, that debt, if unpaid, could make it difficult for you to qualify for loans and borrow later in life. If you have a credit card addiction, it may help you in the long run to substitute it for a debit card or cash to make your purchases going forward. Give it a try!
Paying the Minimum Monthly Payment on Credit Card
Another reason why some people accumulate more and more debt is electing to pay only the minimum amount agreed upon each month on a credit card. According to bankrate.com, the current average credit card rate as of April 11, 2018 is 16.87%. As a helpful scenario, let’s say Tom has a balance of $1,000 on his credit card with the average 16.87% interest rate. He elects to pay the minimum of $20 per month because it won’t put a dent in his bank account. However, what Tom doesn’t know is that paying the minimum each month will take him 87 months to pay off his credit card, while also paying an extra $738.83 in interest. In total, Tom is paying $1,738.83 for the $1,000 balance on his credit card. (If you hate math and don’t want to calculate interest on your own, there is a very helpful credit card interest calculator here provided by financialmentor.com. All you have to do is plug in your credit card balance, your APR and monthly payment you will make, and it will do the math for you!)
In this example, do you see how only making the minimum payment cost Tom 74% more than his original balance? If you have the financial means available, you may want to consider paying your credit card balance off every month or at least pay more than the minimum payment to avoid paying extra in interest!
Need to Live a “Lit” Kind of Lifestyle
If you need to recalibrate your vocabulary in order to understand modern-day slang, it is completely understandable. The word lit basically means “cool or awesome.” And in this technological revolution we live in, we have a variety of products available to us for purchase which are lit. For example, take a look at this YouTube video about the upcoming Samsung 146-inch modular TV:
Pretty lit, huh?! We can all agree on how amazing modern technology is, but how many of us have a few thousand dollars lying around to make these impulse purchases?
There must be a separation from our needs and wants. There are five basic needs to survive and function properly: air to breathe, water to drink, food to eat, shelter, and sleep. The Samsung 146-inch modular TV has a difficult time fitting into one of those five categories. Try asking yourself the question “Is this a need or a want?” and see if you start saving a little more money every month!
What is budgeting? It is essentially creating a plan that defines and outlines how your money will be allocated by spending, saving, investing, etc. If you dislike keeping track of money and doing the math on your own, there are many helpful budgeting apps, such as Mint, that will assist you with budgeting! If you are constantly falling short of increasing your discretionary income every month, then budgeting will be your best friend; it would certainly be the first step towards getting you on the right track to financial stability.
After using your income on the five basic needs to survive, how much additional income do you have left? Perhaps you start to limit the amount of times you eat out? Maybe you are spending too much money at the mall? Always ask yourself (as mentioned in the previous section), “Is this purchase a need or a want?” It may not be very exciting to live this type of lifestyle at first, but you will find it could potentially help you achieve a long-term happiness from finally being able to live debt free!
As outrageous as it may sound, some people just don’t care. “What’s the worst that could happen?” Beverly Harzog, an author, was once a victim of this and buried herself in $20,000 worth of credit debt because she simply stopped paying her monthly bills. Harzog describes her experience by saying, “Unfortunately during my break from reality, everything had deteriorated to the point of ugliness. Some of my accounts had gone to collection agencies. My electricity was about to be turned off. Serious stuff was happening because I refused to live in reality."
Nobody else in this world is responsible for your debt besides you. Sadly, the evil monster of bad debt does not share the same sympathetic feelings as your family and friends; all it wants is the money you chose to borrow from it. If you experience a tragedy in your life, it still carries no empathy. The quickest way to slay this dragon is to push yourself to get out of debt as soon as possible and never look back.
No Money-Saving Habits
They say it takes roughly twenty-one days to develop a habit. In order to achieve this transformation, it will require hard work, sacrifice, goal-setting, and a change in mindset.
Michael Jordan, arguably the greatest basketball player ever to play the game, experienced this type of transformation. As a sophomore in high school, he tried out for the varsity basketball team, but was ultimately cut. Instead of blaming the coaches, players or anybody else in his life, he used this as motivation to work even harder—he took responsibility and changed his entire basketball mindset. Michael Jordan ended up becoming a star high school player, signed a full scholarship with the University of North Carolina, and went on to become one of the greatest basketball players to ever live. These accomplishments were never possible without a complete transformation to his game.
Likewise, will you blame the credit card companies or those around you of your accumulated debt? Or will you use this as a fiery motivation, take responsibility, and transform yourself to prove everybody wrong that you CAN get out of debt?!
Believe in yourself! Become the boss of your debt and work towards a better life.
Hold on for the Ride!
We’ve all experienced the thrill of a rollercoaster, especially the ones that start out slow and gradually make their way up to the top. The anticipation of making your way up to the very top is thrilling, but the real fun and excitement comes when you finally make it to the top, see how far up you are, and speed down the rails to start the ride of your life!
Similarly, the anticipation of becoming debt-free starts with minimizing your credit card use, paying your credit card balances off, spending frugally, budgeting, taking responsibility, and developing those money-saving habits. Eventually, you will be at the top of this rollercoaster, ready to be debt-free. Hold on for the ride because excitement and a better life could be waiting for you!