This is a guest post by Michael Edmondstone.Â Â MichaelÂ is a freelance journalist who covers a variety of topics but keeps coming back to his passion for personal finance. He currently lives in London where he writes for a number of publications.
For most people, acquiring some debt is inevitable as they go through major life changes. Financing an education, buying a car, and becoming a homeowner are some examples of â€œgoodâ€ debt; that is, debt that either enables you to advance in your career or debt that is projected to bring you positive returns in the long run. However, thereâ€™s another common kind of debt that many people have but most are in denial about — credit card debt.
The average Canadian is carrying $3,277 worth of credit card debt — a heavy financial burden by any measure. Statistics for personal credit in the United States paints an even more gruesome picture; the average household in the States has racked up an astonishing $15,799 in credit card balances.
But the mind-sets of these two neighboring nations when it comes to debt are wildly different. According to an info-graphic published by RateSupermarket, 45 percent of Canadians who have more than the average amount of credit card debt donâ€™t think that they do. And when it comes to Canadians who have more than $11,000 in credit card debt — the highest debt bracket published in the survey — 17 percent of them think theyâ€™re not faring so bad financially, believing that they have less than the average amount of debt.
When it comes to the United States, however, thereâ€™s more of an acceptance of debt. In fact, before the financial collapse of 2008, a survey published in the December 2011 issue of the Journal of Consumer Research that involved 27 Americans, who were all white and middle class, revealed that the majority of them felt that incurring debt to finance their lifestyles was simply an American tradition.
However, with the global economy still struggling to pull itself out of a deep recession that impacted everyone financially in one way or another, attitudes about creditcards and borrowing simply to maintain a certain kind of lifestyle are now being challenged. Following this shift in the collective spending mentality, Rate Supermarket lays out a three-step plan to decreasing and eventually eliminating your debt over time.
First, consumers should break the cycle of credit card denial by making a list of all the cards they have. Next, they should determine what they owe on each card, and how much interest they are paying on each one. The card with the highest interest rate should be the first target.
And because youâ€™ll never reach the goal (a balance of zero) if you keep charging up your cards, it is recommended that you leave them at home. Start making all of your purchases in cash so that you can see when youâ€™re about to go over budget, or when youâ€™ve managed to spend under your budget, in which case you should use the remainder to pay your credit balance.
Following these three steps can help pull you out of a deep financial recession. But most importantly, it can help Canadians and U.S. consumers alike out of an even more serious problem–credit card debt denial.