Revolving balances may be holding people back from moving forward.
Though the economy has begun its slow recovery from the recession observed late in the last decade, one of the things keeping it from equalizing more quickly may be the amount of credit card debt carried by consumers.
The average American household has relied too heavily on credit and debt to achieve stability and reach their goals. While focusing heavily and eliminating everything from car and home loans to credit card debt, consumers have not been able to aid nation’s economic recovery by increasing their spending, according to a report from the Wall Street Journal. All told, the average American household borrowed about 127 percent of their annual incomes just prior to the recession, compared with just 84 percent in the 1990s.
The trouble with this is that paying off that much of an overhang with debt has left consumers with little to spend on new purchases – something that’s going to be required to kick start the economy moving forward. Lack of purchasing activity means less profits for U.S. businesses, which means the recovery may be extremely slow going.
How to knock out your debts one by one
In reality, you don’t really knock out debts one by one, but instead you work your way down one by one to find solutions that will allow you to eliminate each type of debt as quickly as possible.
- Credit card debt. This is often the type of debt that causes the most problems because the amount you owe changes based on how much you charge. Luckily, it’s also usually the easiest to solve, too. You can use do-it-yourself debt consolidation solutions if you have a good credit score or enroll in a debt management program through a credit counseling agency if your credit score isn’t strong enough to solve your issues on your own.
- Student loan debt. Federal student loans can also be consolidated using one of five federally approved programs. You can choose a program that lowers your payments so you can get relief today or make a plan that pays off your debt faster so you can finally get it off your plate.
- Auto loan debt. If your auto loan is taking too long to pay off, consider refinancing to reduce the interest rate so you can pay off the principal faster. This may also be a good candidate for debt restructuring, since a bi-weekly payment schedule will help you eliminate the debt faster.
- Mortgage debt. If you haven’t done so already, you should speak with a HUD-certified housing counselor to see if you’re eligible for refinancing or mortgage modification under programs like HARP or HAMP. Particularly if you have an adjustable rate mortgage, you may benefit from adjusting your loan to make it easier to manage.