Eliminating credit card debt is the absolute best way to improve your long term financial status. Before you can consider retiring, you must have this debt gone.
And even if you're not close to retirement, you should be working on eliminating this debt as soon as possible. It is eating up your net worth, and it can be an insidious burden that can get out of control.
Significant credit card debt is not just a problem because you have the extra monthly payments eating up your income.
In many cases it becomes difficult to reduce the balances because of the high interest charges.
Only a portion of those monthly payments actually goes against the debt.
Credit card debt accumulates if you have gotten into the habit of spending more than you can afford and living beyond your means.
If this is your situation, you won't be able to retire until you learn to live within a budget.
Later you can turn it into a retirement budget and work on your retirement financial plans.
If you can't pay for something from your next paycheck or two, or from your savings, then you can't afford it.
If this sounds like you, follow the steps in these articles and change your spending habits.
Let's suppose you have a Visa card that you use regularly and you have an automatic payment scheduled for $120 per month. The minimum payment due is no big deal, so you're fine, right?
Well, suppose your balance just reached $5000. No problem, since the credit line was recently increased to $6500. Lucky you! But guess what: with an interest rate of 14%, your interest charge is now $57 every month. That means you're only reducing your debt by $63 out of the $120 you pay.
It will take you 22 years to pay this off even if you never use the credit card again. And, you will be throwing away more than $6000 to pay the interest, just on this one card.
Use the this Repayment Calculator provided by the Bankrate.com to see how long it will take to pay off your credit card(s). This might give you an extra incentive to work on eliminating this debt.
You can get into the habit of spending more money than you have coming in, just because you haven't reached the credit limit. (Maybe you have already reached this point.)
It becomes a chronic problem when your budget is too tight because there will always be just one more thing you need to buy that goes on the card.
And if you still have good credit, the credit card companies will continue to increase your credit line, allowing you to keep getting deeper and deeper into debt with them.
At some point, as your minimum payments go higher, you won't have any money left over from paying bills at the end of the month. Once you get to this point, your credit score is at risk as you juggle payments attempting to make ends meet.
You simply can't live this way and have a successful life now or retirement life later.
Before it gets to this point, start working on eliminating credit card debt, immediately!
Continue reading the next articles in this series for more tips.