Tens of millions of people carry large amounts of credit card debt as a result of personal finances, business expenses, emergencies and more. The average American has approximately $5,000 in credit card debt, and the overall amount of credit card debt in the country stands at $850 billion – third only to mortgages and student loans. The associated interest costs with credit card debt can add several hundred dollars per year to your overall balance, which makes the proposition of credit card debt elimination very attractive to many who currently find themselves with a wad of cash and skyrocketing monthly payments. It is not, however, always a good idea to pay off your credit card debt all at once. Below, we will discuss whether this strategy is right for you and what should be handled prior if you plan to do so.
What You Can Gain
Unless you are relatively new to credit cards and credit card debt, then you probably do not stand to gain much from holding a relatively large amount of debt on your cards. In some cases, paying this debt back slowly can help you improve your credit score. For most, though, the reality is that accruing interest charges will result in several hundred dollars per year in additional debt – certainly not a perk. Anyone who pays off said debt at once will avoid the cascading effect of added interest. This can help you enjoy an extra $20 per week or more, depending on the amount of debt you currently possess.
Potential Problems
The biggest drawback of paying all of your credit card debt off at once is the possibility of it accumulating once again at a later date. Many people make this mistake: they pay off their debt and resume normal use of their credit cards. Before too long, the debt has returned and the potential investment that they once held (that was used to pay down the debt) is gone as well. Irresponsible credit card practices most likely resulted in the debt. If these issues are not rectified, then the debt will certainly return in the future.
Behaviors to Correct
The first and most important element in any debt reduction or elimination plan is to cease credit card use. This can be difficult for some, but only goes to show that the continued use of cards will result in new debt after the initial amount has been paid. The next step is to find what is causing your excessive credit card use – the card itself cannot be blamed. Impulsive behavior is the most common cause, but the monitoring of your credit card usage and overall spending can shed some light on this. Finally, you will need a strategy that allows you to pay off any credit card debt should an emergency dictate its use in the future.
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