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Master Debt, Upgrade Your Financial Health

July 30, 2024

Unexpected medical bills, a job loss or purchasing a big-ticket item can decimate savings. But relying too much on credit to pay for expenses can hurt your overall financial health if left unchecked.

Here’s what to know about debt and how to manage it.

Interest Rates and Why They Matter

According to Experian, the national average for card debt is $7,951 per household. The Federal Reserve reports that the average annual percentage rate is 22.76%. If you tend to carry a balance each month, it’s important to find a card with the lowest rates. Otherwise, you’ll be stacking up interest. Paying the minimum amount keeps your account in good standing and avoids late fees but it does nothing to improve your finances.

To estimate your interest charges, try this debt payoff calculator to determine how long it will take you to pay down debt. You can also see what making extra payments looks like.

Is Your Debt Too High?

Quick Test:

  1. Are you only paying the minimum amounts on your credit cards?
  2. Do you rely on credit cards every month to get by?
  3. Could you pay off your credit card debt today without hardship?
  4. Is your credit card debt increasing?

If credit cards are impeding your finances, you need to revisit your budget and write down every debt you have, including how much you’re paying in interest.

Your Spending Habits Affect Your Credit Score

Monitoring your credit score is an important part of managing your debt. To keep your score in good shape, pay your bills on time, don’t max out your credit lines or apply too frequently for new credit. Late payments are one of the biggest ways to quickly lower your score. 

 Budget for Your Debt Obligations

If your debt has crept up, revisit your budget to find out where to cut back. Track your spending for at least two months to see where your money is going.

Looking for a budgeting strategy? There are many ways to build one. One easy way to get started is using this online budget worksheet from NerdWallet. It uses the 50/30/20 budgeting method:

  • 50% of your income goes toward your needs.
  • 30% toward your wants.
  • 20% toward savings and debt repayment.

  Ways to Pay Off Debt

 Here’s some typical strategies to pay off debt:

  • Debt Avalanche Method: Make the minimum payment on your cards and add an extra monthly payment toward the card with the highest interest rate.
  • Snowball Method: Pay off the smallest balance first, then put that same payment towards the next smallest balance.
  • Debt Consolidation Loan: Find a loan with a competitive interest rate and use that to consolidate and pay off your debt.
  • Use a Balance Transfer Offer: Many credit card issuers offer balance transfer offers at 0% APR. But make sure you avoid unnecessary fees. Many issuers charge 3% to 4%.

 Saving While in Debt

You can save while you’re in debt. Here are a few tips:

  •  Automate Your Savings: Set up automatic transfers from your checking account to your savings account on payday.
  •  Park your money in a high-yield savings account, to earn more with the risk.
  •  Look for Extra Income: Consider ways to bring in some extra cash.

     When Financial Counseling Makes Sense

    If you’re struggling with paying your bills and find getting a handle on debt is difficult, consider financial counseling. GreenPath Financial Wellness offers confidential credit counseling and debt management planning services. Many SchoolsFirst FCU Members have taken advantage of personalized coaching to develop a game plan to create a budget, tackle debt and save more.