Sick of carrying a credit card balance? Save yourself!

The average American has $15,263 in credit card debt. Yikes! $15,000 for each person in the United States of America is a lot of money. Many twenty-somethings don’t see why this is important or how it affects them, but trust us… it does.

Getting in over your head when it comes to credit card debt isn’t difficult. In fact it’s pretty easy. Look around the next time you’re on campus and you will be shocked by the number of credit card companies handing out cards to freshman who have no income and thus no means to pay back the money they have borrowed.

Credit cards are just that–money you have to pay back. Twenty-somethings should use credit cards as a tools to build their credit history, not  as an unlimited source of extra income.

We are a generation of “I have to have it now;” patience really isn’t a virtue for us, but it should be. Learning to save money and delay purchases will not only be more gratifying in the end, but will cost you a lot less.

So what exactly is the cost?

Assuming you’ve managed to rack up $5,000 in handbags, watches, vacations, and fine dining experiences, paying off the minimum will cost you substantially more than it should.

By using Bank Rate’s online calculator, to be able to pay off $5,000 on a credit card (minimum payment at 20%), it will take you 277 months (that’s just over 23 years) to pay off that $5,000 balance. Over the course of the 23 years, you will pay $7,723.43 in interest. That’s more than the original $5,000 balance! Instead of paying $5,000 for the items you purchased you’re paying $12,723. That’s ludicrous! By paying the minimum balance, or really anything less than the amount you owe is costing hundreds if not thousands of dollars in interest.

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You’re maxed out, now what?

1. You’ve been living beyond your means and you’ve bit off more than you can chew. You’re maxed out. So what do you do? The first step is to STOP SPENDING. Curb your indulgent habits, cut up those credit cards. Whatever you do, stop spending money you don’t have.

2. Next up is building a budget and repayment plan. We know that this sounds really fun, but we promise it isn’t quite as bad as it sounds. Building a budget entails figuring out exactly what your expenses are and how much income those take up. Allocate some of your money toward fun, but certainly not all of it… you have debt to pay off!

You should try to repay all of your debt in three years so that you can avoid debt fatigue. If you’re aggressive or find a way to bring in a second source of income you should be able to pay off your debts more quickly. Remember, the faster you pay off your debts, the less interest you pay.

3. Cut out the extra stuff. Credit cards are costly… we already know that. To minimize the cost you need to pay it off as quickly as you possibly can. While this isn’t fun to hear, cutting out the extras is a great way to add a bit more income to your budget.

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Bringing your lunch to work/school instead of buying it, brewing your coffee at home, and trying to not buy any clothing for six months are all great ways that will help you save money and pay off your debt more quickly. In the grand scheme of things six months isn’t that long and your bank account will thank you down the road.

4. Track your debt repayment. This is a step a lot of people tend to ignore; however, if utilized correctly it can be a great tool. Tracking your debt repayment will hopefully act as a way to motivate yourself. Track how much you have paid off, how much you have left to go and how much interest you have paid to date.

There are tons of creative ways of doing this: graphs in excel, poster boards on the wall or even just in a notebook you keep beside your bed. Whatever you choose, use it as a tool to motivate yourself and ensure you are celebrating your accomplishments.

5. Lastly, celebrating your mini-milestones will help your ease the pain of debt repayment. Every time you knock a zero off the balance or get it below a specific number treat yourself to something small, like a lovely latte on a chilly fall day. Enjoying the little things in life will not only help you see these things are in fact valuable but they will also motivate you to pay off your debt more quickly.

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So you’ve paid off your credit card debt, now what?

Hooray! You’re in the clear, and you’ve rid yourself of that extremely expensive credit card debt. But you’re not done just yet. Once you’ve paid off all your credit card debt you should tackle any other form of debt you have. Once you’re done that ensure you don’t go back to spending like you used to.

Live within your means, in fact you should be living below your means so that you have some extra cash to put away and save. Motivate and educate yourself to become financially responsible so that you never end up in a position again where you owe people money. Your money should be yours but when you have debt, it really isn’t yours… it’s the bank’s or really whomever you owe the money to.

Photo credit: Rachael Tulipano