The Bad Habit Americans Can't Shake When It Comes to Credit Card Debt
September 12, 2017
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Let's start with the good news: Americans paid off $30.5 billion in credit card debt during the first quarter of 2017 — that's seriously impressive!
Before you start high-fiving each other, though, here's the bad news: We then proceeded to rack up $33 billion in new credit card debt during the second quarter. Come on, guys!
All this borrowing has us on track to reach well over $1 trillion in credit card debt by the end of the year, according to WalletHub, who crunched the numbers. And this coming off the worst year for credit card debt since the Great Recession. (We ended 2016 with more than $87 billion in new debt.) Is this making you nervous? Because it should.
And when we looked at previous years' numbers, we found that Americans appear to fall into the same pattern with credit card debt time after time.
According to WalletHub's data, each year starts out strong, with the country paying down large amounts of debt in the first quarter. It is resolution season, after all, so maybe that, combined with holing up in your house during the colder winter months, creates the right atmosphere for getting serious about debt and cutting back on your overall spending.
But for the remainder of the year, the numbers always fall back into the red, which means the country never manages to dig out from underneath its balances. And we can guess why history keeps repeating itself: Three months into financial fasting, maybe you start to get hungry. And like a dieter falling off the Whole30 wagon, you want it all: the sugar, the dairy, the carbs. Cue the second quarter, and you start undoing all the progress you just made — and then some.
The key to lasting progress? Don't deprive yourself! Just because you need to cut back your spending doesn't mean you have to cut out the things you love completely — it's all about moderation. Here are some tips to get your debt in check:
1. Create a Budget That Works for You. If you can't live without your daily coffee fix, then telling yourself it's off-limits is setting yourself up for failure. Instead, find trade-offs in other areas (like your Seamless addiction or Sephora runs).
2. Prioritize Your Emergency Fund. You can't kick the credit card debt cycle for good until you have an emergency fund. Here's why: Say an unexpected expense pops up, like a fried laptop or a surprise vet bill. Without some rainy-day savings, you'll have to turn to your plastic to bail you out.
3. Pay Down Your Costliest Debt First. Rather than randomly throwing extra cash at your balances when you can, zero in on your highest-interest card and start aggressively paying off that balance first (while continuing to pay the minimum balance on your other cards, of course). That extra interest will cost you more in the long run, so knock it out first, and then move on to the next highest-interest card.