KNOXVILLE (WATE) – They are little pieces of plastic that promise great rewards and the freedom to buy what you want, but are credit cards more of a problem than a benefit? Americans have racked up hundreds of millions of dollars in debt, so some financial advisors say yes.
We swipe and spend. The average American has about two credit cards and uses them nearly 25 percent of the time they are shopping. That means those balances add up quickly leaving people in the U.S. with nearly $1 trillion dollars of credit card debt.
“Not only does that put an impact on your livelihood, your spending, but also there is what we call opportunity costs. That’s money that you could maybe pay off your home sooner or put this money toward college planning,” said John Fawaz, Certified Financial Planner.
Fawaz said the average household has more than $16,000 in credit card debt, and the interest can add up.
There are some reliable ways to take care of it if you find yourself in over your head: “The Snowball Method” and “The Avalanche Method.”
“The snowball is basically you list all your credit cards and you start with the smallest one first,” Fawaz said. Once you pay one off, you take the excess you were spending on that one and apply it to the next highest card.
“The avalanche strategy is you list all your credit cards and then you start with the highest interest,” Fawaz explained.
He also said it is never a good idea to take a loan to pay off your balances, and once you pay one off cancel it.
“Sixty percent of people that have credit cards don’t pay off their credit card balance end of the month,” he said.
Fawaz said there are some credit cards that offer good rewards, like cash back or airline rewards, if you are disciplined enough to pay them off in a timely manner, but avoid store credit cards because you will likely end up spending much more in interest over time.