The average indebted American household is carrying credit card debt of $15,191 as of April 2014. I’d also venture to say the average indebted American household wishes it was carrying $0 in credit card debt. Here are a few reasons why you’re still in debt even though you don’t want to be.
#1. Lifestyle inflation
When you transitioned from broke college kid to less-broke entry-level professional, you probably started spending more money. You tossed your futon in favor of a real mattress, you started buying groceries instead of seeking out free food at campus events, and you decided that forgoing the dentist to save some cash is silly. And there’s nothing wrong with that, right? Right.
But then you got a raise. And you realized that mattress could be plusher, those groceries could be organic, and Invisalign would make your teeth look better. This is called lifestyle inflation — or the tendency to spend more as you earn more. Once again, there isn’t anything wrong with this, as long as you are also saving more as you earn more. The problem is when credit cards are supplementing this inflation.
Let’s say you started using a credit card for vacations when you got your first job. You never miss a payment, but you only make the minimums. Then, your income goes up and your issuer raises your limit. If you then choose to upgrade your vacations, but continue to make only the minimum payment, your credit card debt increases as your income does, keeping you in debt.
Solution: If your credit card debt is rising as your income goes up, you aren’t making any progress. Use your next raise to put extra toward your credit card debt until it’s paid off instead of upgrading your lifestyle.
» MORE: How to pay off debt
#2. Living in a high cost of living area
As a general rule, the more desirable an area, the higher the cost of living is in that area. If you’re only able to pay your living expenses and minimum payments on your credit cards, you will be stuck in debt for the foreseeable future.
Solution: The obvious solution: move to a lower cost of living area. However, this may be undesirable if you have a job you enjoy or family nearby your current home. The other option is to make more or spend less. Living in a high cost of living region means you’ll have to sacrifice financially in other areas, so decide what’s more important to you — your location or something else.
#3. Anticipating a higher future salary … and spending like you have it
In college, you likely took out extra student loans because you expected a great salary upon graduation. Then, you got your first job and “invested” in a killer wardrobe in order to dress for the job you want. As you continue to move up the income totem pole, if you’re spending like you’re earning money one tier up, you’re going to stay in debt. It’s simple math — spending more than you’re making creates a deficit.
Solution: Spend no more than what you’re making right now. In fact, spend less —you should save a portion of your income and pay off existing debt. You’ll probably make more money in the future, but don’t spend it until you have it.
#4. Debt? What debt?
Debt denial — or the ostrich approach to credit card debt — will keep you in debt forever. Because you don’t really know or care how much debt you have, you can’t eradicate it.
Solution: Open your bills, list out your debts and start paying them off. Ignorance may be bliss, but it’s also really expensive — possibly costing you thousands in interest and fees. The only way to get rid of debt is to face it.
#5. Failing to plan
You’ve likely heard the saying “failing to plan is planning to fail,” and that’s definitely the case for paying off credit card debt. You need to create a plan that enables you to pay more than the minimums each month.
Solution: Here’s how to make a debt payoff plan in four simple steps:
Write down your debt balances and interest rates.
Prioritize them from highest interest rate to lowest.
Make minimum payments on all of your debts except for the highest interest rate debt — throw your extra money here.
If you want to increase the amount you’re putting toward debt, make more or spend less and put the excess toward your highest interest debt.
That’s it! Creating a debt payoff plan really isn’t difficult.
Bottom line: If you’re stuck in credit card debt and don’t want to be, identify what’s keeping you there. In most cases, removing a barrier — like high cost of living, spending like you’re making more, or simply opening your credit card statements — is the first step to achieving debt freedom. Use the solutions above to get your debt paid off once and for all!
Stack of colorful credit cards image via Shutterstock