Spending money takes seconds, but paying it off could take years. Not only that, it can have serious ramifications for the debtor's quality of life and mental well-being. Other than justifying why debt avoidance is critical, this article also provides useful tips to avoid debt.
Why is it Important to Avoid Credit Card Debt?
According to TransUnion (a leading credit reference agency), the median level of unpaid credit card debt per card was $5,710 at the end of December 2008. Remember that this is an average figure; many families struggle to keep up with interest payments on far larger sums.
A Consumer Action credit card survey covering 20 leading providers showed that the average rate of APR on unpaid credit card debt was 13.54% at the end of July 2008. This means that the average family spends $773.13 per year servicing the debt on each and every credit card they own.
The February 2009 Federal Reserve Survey of Consumer Finances produced statistics showing that each family held an average of two cards. A total of $1,446.26 is spent servicing revolving debt by each U.S. family. This figure doesn't take into account other debts, such as mortgages and loans.
Tips to Avoid Debt
- Budgeting. Put all sources of income and expenditure into a spreadsheet, set out a budget and be sure to stick to it. If expenditure is greater than income, a Debt Management Plan will help to tackle this imbalance. A non-profit debt counselor will be able to help.
- Leave charge cards at home. Paying by card makes unpaid credit card debt seem less than it really is. One of the best ways to save money is by paying in cash as it makes transactions seem more real.
- Prepare for the unexpected. Most financial problems originate from unforeseen circumstances. Try to put 5% of each pay check into an emergency fund.
- Don't use credit. Don't spend tomorrow's money today, as interest payments and charges will reduce the amount of disposable income available in future months. Try to reduce credit limits.
- Avoid impulse buying. Don't shop for food on an empty stomach or buy things simply because they might be nice. Avoid credit card debt by distinguishing between 'wants' and 'needs.' Leave it 24 hours before making any major purchase.
- Best deals. Amongst the easiest ways to save money is using an online comparison service. Trawling the market for the best deal on mortgage, insurance and other products ensure that the lowest possible price is paid. This is an important part of any debt avoidance strategy.
- Pre-paid cards. Another tip to avoid debt is using a pre-paid credit card as the customer is able to load the card with their own cash. It doesn't involve any credit and helps with budgeting.
The easiest way to save money is avoiding unpaid credit card debt. Interest payments and further charges reduce disposable income. Following the above tips to avoid debt will help a consumer to lead a more peaceful, stress-free life.
Sources
creditcards.com
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional before proceeding.
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