Don’t let credit card debt cripple your finances | Opinion

Credit card debt is a problem for millions of Americans, and a particular concern for South Florida residents.

A recent report from WalletHub, a personal finance website, projects an $80 billion net increase in credit card debt for 2019. That would increase the average household balance to $9,451 at year-end, before all those big bills for holiday purchases come due.

The same report, based on data from TransUnion, the Federal Reserve, the U.S. Census Bureau and WalletHub’s proprietary credit card payoff calculator, shows Miami is near the bottom of 2,500 U.S. cities when factoring income and “least-sustainable credit card debt” into its formula. Compared with top cities, Miami ranks at the 98th percentile for cost of interest until payoff ($1,844) and 99th percentile for expected time to payoff (86 months and five days). In other words, some Miami households could spend the next seven years paying off their current credit card debt, even without making a single new charge.

Since every dollar spent on credit card debt isn’t available for savings, investing or other purposes, it’s important to take action, if necessary, and start putting those dollars back into your own pocket.

What you can do

If you are concerned about your credit card debt, there are several steps you should consider. First, make a list of all your credit cards and look at the most recent statements, online or in print. That will tell you several important pieces of information, including the total balance on each card, the minimum monthly payment and the interest rate charged by the credit card company.

Now, don’t feel depressed if you see a high total balance! Many people who over-use their credit cards are in a state of denial and avoid facing the facts. By taking the time to understand your own situation, you’ve already overcome that hurdle.

Next, you should determine your monthly household income and see just how much you are spending each month on your credit cards. That will give you a better idea of changes you could make to start reducing your overall debt.

For example, you might be able to cut back on some of your spending, such as restaurant meals, entertainment or transportation costs in order to free up extra dollars for your debt payments. Alternatively, you might be able to bring in more income, and apply that money to your credit card debt.

Another important step to reducing your debt is to minimize the use of your credit cards. Today, you can pay for many goods and services with a debit card. Those funds come right out of your checking account, so you won’t be adding to your debt (unless you overdraft your account).

If you have several credit cards, you could also put all but one of them aside. Take them out of your purse or wallet, and keep one card available for convenience or financial emergencies. Meanwhile, you can get into the habit of paying off all your new charges each month, so you don’t add to your debt.

A debt reduction plan

Once you have your spending under control, you can develop a plan to reduce your credit card debt by paying significantly more than the minimum amount each month. Even if it’s just an extra $50 or $100 in each payment, you can begin to whittle down that daunting balance.

Now, go back to those monthly statements and see which card has the highest interest rate. Then, you should plan to pay off that balance first. Once you have reached that goal, then you can switch to the card with the next highest interest rate. Meanwhile, you will still need to make at least the minimum payments on the other cards to avoid late fees or other penalties.

Finally, be patient. It takes time for most people to pay off all their cards. So, give yourself a pat on the back every time you reach a zero balance. And once you have finally paid off your credit card debt, go out and celebrate your success. Just be sure to pay for it with cash or your debit card!

Andrew Menachem, CIMA®, is a wealth adviser at The Menachem Group at Morgan Stanley in Aventura. Views expressed are those of the author, not necessarily Morgan Stanley, and are not a solicitation to buy or sell any security. The strategies and/or investments referenced may not be suitable for all investors. Follow Menachem on Twitter @AMenachemMS.

This story was originally published October 16, 2020 at 12:00 AM.