People stuck with credit card debt may be less worried about it than you might think. In a survey, a third of respondents said they have credit card debt, yet only 2% said paying it off is a major worry.
Those findings come from the National Foundation for Credit Counseling’s 2015 Financial Literacy Survey, sponsored by NerdWallet, and are based on more than 2,000 responses. The suggestion: People in credit card debt may not see it as a threat to their financial well-being.
Credit card debt negatively affects your financial life
Credit cards present an easy opportunity to get into debt. As you swipe to pay for your everyday purchases instead of using cash, your balance can add up quickly. Having credit card debt can hurt you in a few ways:
You’re paying interest: Say you owe $5,000 on a credit card at 18% interest with a minimum payment of $100 a month. If you pay only the minimum payment every month, it will take you seven years, 10 months to pay off your balance, and you’ll pay $4,311 in interest. That means you’ll end up paying almost twice what you originally borrowed because of the interest.
» MORE: How to pay off debt
You may have high credit utilization: The amount you owe determines 30% of your FICO credit score, and your credit utilization ratio is a big factor in that. Your credit utilization ratio is calculated by dividing your credit card balance by the card’s credit limit. For example, if you have a $5,000 balance and your credit limit is $10,000, your credit utilization ratio is 50%. It’s generally recommended to keep your credit utilization ratio below 30%, so having a large balance relative to your limit over a period of time can damage your credit and make it difficult to borrow affordably in the future.
Your budget is less flexible: Having a monthly credit card payment keeps you from spending that cash how you want. The more debt you have, the less room you have in your budget.
Tips for paying off credit card debt
The key to getting and staying out of debt is to establish good financial behaviors:
Avoid adding more debt. If you’re trying to lose weight, gaining a few extra pounds is a step in the wrong direction. The same goes for your credit card debt. The first step for shedding debt is to avoid adding to it. You can do this by brushing up on your budgeting skills to avoid spending more than you have. If you need to, cut yourself off from credit by physically cutting up your card and switching to a debit card or cash.
Increase your income. If getting a raise at work isn’t an option, you may want to consider finding ways to earn extra cash on the side, which can then be used to pay down your debt. This may include picking up a part-time job, selling unnecessary items or offering your skills to others via freelancing.
Do a balance transfer: Consolidating your credit card debt with a 0% balance transfer card can save you both money and time as you take advantage of an introductory 0% APR period to pay off your debt. However, some cards charge an upfront fee on the transferred balance, so do the math before applying to make sure you’re not losing money.
The best plan of action is to avoid credit card debt in the first place. But if you find yourself in debt, there are several ways to earn more or spend less to pay it off. In general, the Nerds recommend avoiding credit card debt because it can not only harm your credit, but also keeps you from spending your money how you want.
Image via iStock.