Personal debt problems abound, but this strategy could help you find relief.
With the economy in a slump, one can sympathize with the number of people currently facing debt. In fact, the average American household has about $9,000 of credit card debt. For most households that’s simply too much debt to hold at any given time.
Keep in mind that non-mortgage debt should never exceed 15 percent of your annual net income – that’s the money you take home in your paychecks after taxes and benefits have been deducted. If you have $9,000 in revolving debt, then your household income should be at least $60,000 per year. And remember that $9,000 doesn’t even include all of the other types of mortgage debt, which can also include car loans, student debt, and personal loans.
According to the U.S. census, the average American family only makes $50,221 per year. That means at most, a household should only carry about $7,533.15 in non-mortgage debt at any given time. Debt payments should equal about 10 percent of your monthly net income.
$50,221 / 12 x 10% = $418.51
At the median household income, a family should really spend no more than $420 per month on non-mortgage debt payments. If you’re spending more than that to cover your obligations, then you either need a higher annual income or you’re overly indebted.
The certified credit counselors of Consolidated Credit recommend the following steps to get out of credit card debt.
- Step 1: Use cash whenever possible. Avoid using credit cards.
- Step 2: Find out how much you owe, by adding up all your debt.
- Step 3: Pay off the debt with the highest interest rates first.
- Step 4: Create a day-to-day budget you can survive off of.
And always remember, it’s important to be patient while trying to get out of debt. If you can’t get out of debt within five years by tightening your belt and buckling down in your budget, then you need to find an alternative means of debt relief. If you have a good credit score, you may be able to consider options for do-it-yourself debt consolidation. Otherwise, you should contact a certified credit counselor to see if you’re eligible for a debt management program.
If you’re struggling to get ahead of your debt and you need help making a plan that eliminates it as quickly as possible, we can help. Call Consolidated Credit today at or complete an online application to request a free, confidential debt and budget analysis from a certified credit counselor.