Debt is something, typically money, that is owed or due. Borrowing more money than you can afford is costly in many ways. According to the Federal Reserve, in April 2013 the average credit card debt equaled $3,364 per U.S. adult. If you paid just the minimum amount due ($67.28), it would take you over 19 years to pay off this debt. And you would pay a total of $7,618.64 over this time, that’s $4,254.63 more than you borrowed.
Taking on too much debt also lowers your credit score. That means you will end up paying higher interest rates on all your consumer and mortgage loans. A low credit score can also make it harder to rent an apartment, get utility services, and even get a job.
Too much debt isn't just expensive. People with lots of debt often say they lack peace of mind. They worry constantly about paying off debts and making ends meet. The stress of these worries affects their family life, work performance, and other areas of their lives.
The only way to reduce credit card debt is to make payments each and every month. To reduce this even faster you should pay more than the minimum payment each month.
March 12, 2012
By Kristina Wedseltoft, America Saves Intern
Moving from California to Washington D.C. for 3 months was a drastic change in it itself, but learning how to budget my money effectively was an entirely different kind of change. In San Diego I had a job working at our school bookstore and for the most part didn’t really concern myself with creating or following a budget. But once I came to D.C. my only source of income was going to be the money my mom gave me on the first of each month. Before I left California I decided to create a budget that I thought would be perfect. But it wasn’t until I was here in D.C. that I figured out my spending habits had to change.
Only being here for a short period of time, I figured it would be easy. For the first couple of weeks I tracked everything I spent from each Starbucks coffee to grocery shopping. I quickly realized that I needed some help, so the first things I looked into was utilizing some budgeting applications that I could keep with me at all times on my iPhone. But even though I created a budget, I found that the quickest way to learn how to save money was from my mistakes.
There is an easily accessible ATM in the lobby of our building, that’s what I thought until I learned firsthand about all the charges that come with the “convenience factor”. I definitely learned the hard way, because after falling for the ATM trap, I ended up with $6 in fees. Not only did the ATM charge me a fee, but so did my bank! Many people, including those I’m living with, tend to ignore these fees that can be easily avoided and could be saving about $150 a year! Instead of using an ATM that may charge you a fee, try locating the closest ATM of you bank, it could be just around the corner. Also many stores today offer a ‘cash back’ option, so if you’re desperate with no ATM, pick up a pack of gum or mints and take out cash that way.
Each tax season, households making less than $52,000 claim $100 billion in federal tax refunds. If you're like us, that tax refund is the largest check you will receive all year. This windfall provides the perfect opportunity to start or grow an emergency fund, college fund, save for a large purchase or whatever your savings goal is. Many people view tax refunds as unplanned bonuses. They see the money as a gift from the government, to use for splurges or treats, but a tax refund provides the opportunity to improve your financial situation.
Your hard-earned tax refund is a great opportunity to build up your savings and have the chance to win cash prizes through Save Your Refund.
Commit to save a portion of your tax refund and share your savings goal with us and you could win one of 102 prizes up to $10,000. But you can't win unless you save, so make a commitment to yourself today. By making this commitment early, you'll be much more likely to save later. Enter Save Your Refund now.
- Pay down your debt. Use your refund for some much needed debt relief. Pay off your credit card balance. If you have an outstanding balance on more than one credit card, try to pay off the smaller, high-interest rate balances first. That will free up more funds to put toward larger balances. Alternatively, you can apply your refund toward other debts, like a car loan or a home equity loan.
- Save for a rainy day. Why not give yourself an even bigger return on your tax refund by putting the money into a savings account, CD, retirement fund, or purchasing a tax time savings bond? Your tax refund will continue to grow if you put it into savings or invest the money. It's always helpful to have a savings account to draw from when a major car repair bill, medical emergency or other unexpected expense comes along. That way, you don't have to borrow money and add to your debt-load.
- Consider your financial goals. Trying to save for a house or car down payment? Hope to contribute to your child's college tuition? Consider applying your tax refund toward these goals. If you don't yet have a set of short-term and long-term financial goals, put one together. You'll be more conscientious about how you spend your refund or any other extra money that comes your way.
Remember, you work hard for your money and you deserve to enjoy a healthy financial lifestyle. Put some thought into how you use your tax refund. Making smart financial decisions is not always easy, but it will definitely benefit you and your family over the long term.
Bilingual Car Purchasing Materials
The following Hispanic America Saves materials provide advice, in English and Spanish, on whether and how to purchase a car. Use the brochure, poster and flyer to educate buyers on saving for a down payment, shopping around for a loan, and researching prices on new and used cars.
More car buying resources:
- Whether to Buy a Car
- What Car to Buy
- Should You Buy a New or Used Car
- How to Shop Around for the Least Expensive Car Loan
- How to Save for a Larger Down Payment for a Car