Tag Archives: consumer debt

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Crawling Out of the Consumer Debt Trap

The average American currently carries between $10,000 and $15,000 in consumer debt, and this includes credit cards, store cards, auto loans, personal loans and any other amounts owing that don’t include mortgage payments. If only the minimum required payment is made on debt of this amount, it would take a whopping 13.5 years to repay it in full – and this is if no additional debt is accrued during this time.

Regardless of the type of debt you’re carrying, there are steps you can take that will help you get out of the consumer debt trap once and for all.

Pay More than Minimum Required Installments

One of the best ways to eliminate consumer debt as quickly as possible is to pay more than the required minimum balances on any outstanding amounts. This will not only reduce the amount of time you’ll need to pay a bill in full; you will also save a significant amount of interest while repaying your debt.

Consider Using the Debt Snowball Method

This process involves paying as much as you can on your smallest consumer debt, while ensuring that minimum repayments are still being met on the others that still need to be repaid. 

Start by listing all of the consumer debts you’re currently carrying, from the smallest amount owing up to the largest. Do everything you can to pay as much as possible off on your smallest debt each month. Once the smallest debt has been fully repaid, take the amount you were paying towards it and include it on the minimum amount you were paying on the next smallest outstanding debt. 

An alternative approach here can be to get the debts with the highest interest rates paid first – this will help save a lot of money over the long term.

Stick to a Tight Budget

After deciding that you want to eliminate your consumer debt, you’ll need to examine your budget carefully – if you don’t have a budget outlined, now is the time to address this issue. 

Start by collecting bank account statements and carefully check each line item – this will allow you to see how your hard-earned cash is being spent each month. While those drive-through coffees and $10 lunches may not seem like a lot of money, they quickly add up, especially if it becomes a regular habit to indulge in them. 

Subscriptions to the fastest internet packages (slower options usually get the job done just as effectively but for a fraction of the price), online streaming, club memberships, monthly box deliveries and any other recurring expenses that aren’t genuine essentials should be eliminated from your budget until your debt is fully repaid. 

Once your debts have been paid in full, you’ll be able to re-examine your budget to determine how much money can be set aside for discretionary expenses. 

Although you may think that you’ll be depriving your family of the ‘nice to haves’ while you’re dealing with your outstanding consumer debt, the truth is that your whole family will enjoy far greater peace of mind in knowing that you’ll now be able to start saving for a rainy day instead of stressing about trying to make ends meet each month. 

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Tips for Escaping the Consumer Debt Trap

Research has revealed that Americans collectively owe more than $1 trillion on credit cards alone – this doesn’t include other amounts owed on store cards and other forms of debt. If you’re unfortunate enough to be carrying a substantial amount of consumer debt, chances are that you’re thinking it will be impossible to become debt free. However, the following tips and advice will help you claw your way out of the consumer debt trap over time.

Determine how much you owe

Before attempting to repay all of your debts, it’s crucial that you know exactly how much money you owe on various store cards, credit cards or even outstanding medical bills. The easiest way to determine this will be to pull bank statements, credit card bills, store account statements and any other statements from institutions that you owe money to. 

Although it can be scary to see all of your bills facing you at one time, this will be the only way to see exactly how much debt you have.

Set Up a Repayment Plan

Once you’ve determined how much money you owe, you’ll need to set up a plan to ensure that everything will get repaid over time. 

Although the debt snowball method is usually recommended for repaying outstanding bills, it is not the only option. This method involves starting with the credit or store card that has the smallest amount owing on it and repaying as much as possible on the balance each month, while paying minimum require payment amounts on the rest of your debts. 

Another option you may want to consider is determining which credit or store account charges the highest interest rate and repay that specific one down as quickly as possible, while paying minimum amounts on the rest. Over time, this could save you a fair bit of money in interest charges – which can in turn be used to repay other debts quicker.

Inquire about Possible Balance Transfer Options

While it may seem counterintuitive to open another credit card, there may be cases where obtaining a balance transfer option to a 0% interest account could save you thousands of dollars in finance charges. Many credit card providers are so keen to attract new clients that it’s often possible to obtain a deal offering 0% interest for anywhere up to 24 or even 36 months in some cases.

Quit Using Credit Cards

The only way your credit and store cards will be fully repaid is if you commit to not taking on any new debts. It’s no use setting up a payment plan if you’re simply going to use your available balances again. Instead, save up and pay cash for large ticket items you want to purchase such as a new TV, replacement vehicle or that new couch you’ve been eyeing out. Your budget will thank you in the long run.

If you’re keen to create a better financial future for yourself and your family, but aren’t sure how to start doing so, contact us today. We will be more than happy to assist you with setting up a realistic budget and savings plan.

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