Can You Beat Debt with Debt Consolidation?

debt elimination tips

Debt is the bugbear to saving and investment. A debt burden is disadvantageous at many levels, including financial, emotional and in interpersonal relationships. Let’s go back a few years and look at US Household debt. Some two thirds of US households are in debt, with the median household debt averaging around $70,000. Of course, this data was provided by the US Census Bureau in 2011, and the statistics have changed sharply since then.

According to the latest figures, the average household debt in the US (Q2 2017 figures) rose sharply to $137,063. Equally disturbing is the fact that credit card debt now accounts for $1,300 per annum in interest-related charges alone. The average US household has credit card debt of $16,883. With APR’s ranging between 15% and 27%, it comes as no surprise that interest repayments are compounding at a rate of knots.

Fortunately, it’s not all doom and gloom. It is possible to employ effective debt management, debt alleviation, and debt mitigation initiatives to reduce this debt burden. A multi-pronged approach to debt management is best, according to leading debt experts. This incorporates the following:

  • Speak to debt management consultants to find the most effective way to manage your financial affairs. This includes knowing which debt to tackle first, and what techniques to employ moving forward.
  • Use debt consolidation loans to pay off similar debt like credit card debt by aggregating total outstanding amounts, applying for a debt consolidation loan at a lower amount of interest, and eliminating the most exigent debts.
  • Reduce your monthly expenditures by living beneath your means. This includes adopting a lifestyle that allows you to save money every month, and put away for the proverbial rainy days that are going to come. It has been said that wasteful expenditure on things like coffee and croissants ($10 per day) can run you $300 per month or $3,600 per year.
  • Consider a single car as opposed to 2 cars per family, for dramatic cost savings. Consumer Reports found that depreciation, gas and maintenance costs of a vehicle ran as high as $9,100 per year during the first 5 years of ownership. With SUVs, those costs could rise as high as $13,000 per year. Instead of wasting that money on vehicle ownership and maintenance, it can be put to better use by paying down debt.

Paying Down High Interest Debt is a Priority

There are many ways to tackle the exigencies of debt repayment. Foremost among them is seeking the highest interest debt such as credit card debt and paying it off as quickly as possible. Credit cards carrying high interest rates are a no-no. It is preferable to use 0% APR credit cards (if possible), perhaps even transfer debt from a high interest credit card to a low interest credit card.

Customers can benefit from credit cards by using them only for emergencies, or using them for the rewards they offer such as 2% cashback, frequent flyer miles, or promotional offers when available. The most advantageous way to use a credit card is when you have all the funds available in your savings account to cover the full costs of credit card charges every month. That way, you avoid the hefty interest-related payments and enjoy all the benefits of the card.

The biggest debt burdens on US households include the following:

  • Student Loans at $50,626
  • Automobile Loans at $29,539
  • Credit Cards at $16,883
  • Mortgages at $182,421

The reason for the increased debt levels in the US is rising CPI and stagnating real earnings potential. Over the past 13 years, expenses have consistently outpaced median household income level. For example, food & beverage costs have risen by 36% while medical costs have increased by 57%. By contrast, household income has only increased by 28%. This necessitates a rethinking of incomes and expenditures. The proverbial red debted stepchild needs to be beaten into submission by tackling the causes of increasing debt levels and using all available tools to tackle debt effectively.

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