According to NerdWallet, the average American household carries over $15,000 in credit card debt.
Don’t think I’m talking out of nowhere. I’m talking from personal experience back in 2009 when I finished college with over $17,000 in credit card debt.
I was a poor college student living off of credit cards with no income other than my annual summer job.
There are certain practical uses for credit cards, though. You can earn travel reward points or get cash back incentives from your purchases. Credit cards also offer protection against theft and fraudulent purchases. There are a few legitimate reasons to use them.
However, I found it very difficult to manage my finances using credit cards. That’s why I use mostly debit cards now and only recommend credit cards with good travel reward programs.
If you’re not convinced consumer debt is a big mistake, then here are 5 reasons to get rid of your consumer debt ASAP.
- Consumer Debt Stop You From Traveling – I always wanted to travel abroad in college but could never take my focus off of my consumer debts. Instead of enjoying my spring break, I had to worry about bills. Most expats who travel the world sold their stuff, quit their jobs and paid off their debts. You can’t travel if you owe too much debt. Debt consumes your thoughts. This is not the ideal situation to be in if you want to travel more.
- Consumer Debt Costs You A Lot of Money – Many credit card companies charge ridiculous interest rates to make a fortune off of consumers. Have you done the math on how much extra money you need to spend to pay them off? According to FinancialMentor, you spend an extra $11,635 on a $10,000 balance with a 15% APR if you make minimum payments. That’s enough money to live in Thailand for almost 2 years!
- Consumer Debt Stops You From Investing – When you travel overseas, you will notice great investment opportunities all around you. Many emerging countries offer investments with 100% to 1000%+ ROI if you have the cash. All your potential investment capital instead goes towards paying down debt. You’re missing out on golden opportunities that don’t last forever.
- Consumer Debt Keeps You Up At Night – When I was drowning in debt, I had troubling falling asleep at night. I had bills coming in the mail with no income to pay them. I started drinking heavily. I developed panic attacks and night sweats. It wasn’t until I started my own business that I paid off my credit card debt and could sleep at night. Debt not only affects your wallet, but it cripples your health.
- Consumer Debt Makes Banks Rich and You Poor. Wrong Order! – The US banking system considers debt as a “product”. They are selling you debt to get rich. There is no doubt at it. How are you supposed to become financially free if you have to keep borrowing money from banks? Banks makes billions while the average Joe is drowning in debt. Obviously, something is not right.
Good Debt = Debt That Makes You Money
Notice that I mention consumer debt is the problem in most cases. All debt is not created equal. Good debt is debt that makes you money.
Getting a home mortgage is good debt because the earth becomes more valuable over time.
Applying for a business loan is good debt because you can get rich using OPM.
I’m not against debt. I’m against overconsumption of useless junk that we don’t really need but purchase anyway to impress our friends, coworkers and the opposite sex.
I highly recommend reading Rich Dad, Poor Dad to understand the difference between good debt and bad debt. It’s one of the best personal finance books I’ve ever read.
How to Get Out of Consumer Debt
Pay off the smallest debt first then use the extra money to tackle the next smallest until you pay off your largest debt.
It’s simple and really works. Don’t ignore the power of simplicity.
Use Mint to Track Your Finances
To prevent making the same mistakes again, use a personal finance tracking software to see EXACTLY where your money is going every month. Mint allows you to link all your bank accounts and bills together under 1 hub. This will eliminate guesswork and give you an honest overview of what you buy.
Earn More Income
One of the biggest reasons people get into consumer debt in the first place is because you consume more than you produce. It’s okay to consume a lot if (and only if) you produce a lot too.
Think about millionaire celebrities, athletes, and rappers. They are always on social media showcasing their diamonds, cars and luxury homes. People follow them and try to emulate their spending habits.
What’s the problem?
The masses are only copying 1/2 of the equation. They embrace the rich consumption but ignore the rich production.
These celebrities are highly productive, which is why they can afford all these luxuries.
They play a lot of games every season, film lots of movies and record tons of music tracks every year. They are both high consumers and producers.
So if you want to still consume a lot, then just produce more. There are several easy ways to become more productive:
- Work Overtime – Ask your boss for more hours and increase your commitment to your job.
- Start an Online Business – You can keep your day job and manage an online business in your spare time.
- Learn a New Skill – If you want to increase your job prospects, then learn a new skill that will increase your potential salary.
- Learn a New Language – Learning a new language is a simple and easy way to open yourself to bilingual jobs or be eligible to work overseas.
Wrapping Things Up
Hopefully, you found the tips & suggestions in this article helpful. I paid off all my consumer debts in 2013 and haven’t looked back since.
I did it and you can too.
Feel free to leave any questions or comments below.