Talking about money and especially talking about debt is one of the last great conversational taboos. Most Americans have some debt and many of us wish we had less. So, what is average and how can you bring your own number down?
According to recent Federal Reserve statistics, the average American household has just over $200,000 in debt: $15,191 in credit cards, $33, 607 in student loans and $154, 365 in mortgage debt. In total, Americans owe $854.2 billion (yes, billion with a "b") in credit card debt and less than 25% of us have the suggested six month emergency fund in savings.
I used to be part of that 75% lacking in savings, only I was in far worse shape than most Americans. At the ripe old age of 24 I had accumulated $30,000 in student loans, $15,000 in a car loan and a whopping $25,000 in credit card debt. I was making about $30,000 a year and had nothing in savings. It was stressful and scary.
When I hit my financial bottom (when I started having to cash those oh-so-tempting blank checks the evil geniuses at Citicard used to send me) I knew I'd be poor forever if I didn't get a handle on my debt. While there are a lot of debt reduction plans out there, I decided to do a debt snowball (loosely based on a Dave Ramsey plan).
A debt snowball is pretty simple. You figure out all your debt (how much do you owe, who do you owe it to, what are your minimum payments, etc.) and then start by aggressively paying down the debt with the smallest balance while paying only the minimum on the other debts. Once you've paid off the smallest one (and enjoyed the feeling of real satisfaction that comes with see a debt disappear), you roll the amount you were paying on that debt into the minimum payment on the next debt and start aggressively paying down that one. One by one the debts disappear.
I was debt free, with the exception of student loans (I started grad school during this time), but the time I was 27. A few things helped get me there: getting a second job, building up a small emergency fund so emergencies didn't send me running for my credit card, and practicing radical fiscal honesty with myself by forcing myself to do monthly money check ups, which I'll talk about next week.
Becoming credit card debt free is honestly still one of my biggest accomplishments and has improved my quality of life so much that I can get kind of evanfelical about it. The debt snowball really works!
Have you ever done a debt snowball? Do you have any other tips for getting out of debt?