Credit Card Debt: How It Hurts And How You Can Escape

Credit Card Debt

Total up the credit card debt of all the people in America, and it gives each household a staggering balance of $7,115 according to the Federal Reserve. Among just those who have debt, the average balance in $15,252. About half of households regularly carry a credit card balance. With high rates of unemployment, circumstances often force people to use credit cards to finance their lifestyles. This “strategy” leads to significant levels of indebtedness and low chances for repayment.

Yes, this debt level is staggering. It can be the biggest enemy of people who are trying to build wealth. Let’s look at some of the costs of credit card debt and what you can do about it.

The financing costs are high

In February 2014, the average APR on a credit card was about 15%. That means, before considering potential late fees and other expenses, the “debt service” cost on the average household’s debt is $2,287. That’s the amount the debt will grow assuming that no other spending on the cards takes place. If you have a complicated credit history, your interest rate could be as high as 22%. Your debt service then grows to $3,355.

As your credit card statement is legally required to inform you, the debt service costs exceed the minimum payment. This cost will continue to grow forever, even if you never spend again. Interest rates, though, are only the tip of the iceberg.

Credit card companies also stack late fees, collection fees, and other miscellaneous charges on top of these fees. These fees then contribute to the debt load and are charged interest at the same rate. Carrying long-term and high amounts of credit card debt is among the worst things you can do for your personal financial health.

The hidden costs are high

One of the biggest factors in determining your credit score is a figure called your “debt utilization ratio.” This is the percentage of your available credit that you’re currently using. Say you have a credit limit of $5,000 and you carry a balance of $2,500. That means your debt utilization ratio is 50%. Anything higher than 7% can negatively impact your credit score, making it more difficult to get other kinds of credit (such as an auto loan or home mortgage).

It doesn’t stop there, though. That lower credit score also translates into higher interest for unsecured loans, like credit cards. This increase in cost eats up your credit limit faster, driving your credit score down, and contributing to even more debt.

Not only does it hurt you financially, but many employers now use credit checking as a way to assess the trustworthiness and long-term planning of a potential employee. Having a low credit score could cost you a chance at your dream job.

The investment opportunity is tremendous

Savvy investors always like to talk about “ROI” (or return on investment). That’s the percentage of the money they invest that they get back and the rate at which they get it. Warren Buffett, perhaps the shrewdest investor of our time, gets an average return on investment of 17% for his investment company. This is the best work that the best investors in America can hope to achieve. They have to hunt long and hard for places to earn that kind of return.

The interest rates on your credit card debt are right around 17%. Getting rid of your credit card debt can achieve those kinds of returns by saving you an extra 17% on every dollar you pay down. It’s the smartest investment decision you can make.

Your credit union can help

Most habitual credit card users fall into a trap. They charge a great deal to one card then sign up for another to take advantage of low interest rates on balance transfers. They carry this huge ball of revolving debt with them and don’t see much of a way out.

Fortunately, NASA Federal Credit Union is there to help you get out of the crushing cycle of revolving credit card debt. You can get a debt consolidation loan that will help repair your credit score, consolidate your monthly bills into one payment and make that debt cheaper with a lower interest rate. Here’s how they work. You agree to a term of repayment, usually 60 months, and an interest rate. Your credit union issues you a loan for your credit card balance. You then pay them the same fee every month for that 5 years until your debt is repaid. You walk away with an improved financial history and no debt. Congratulations, you are now ready to start saving and investing in your financial future.

Debt consolidation loans aren’t the silver bullet to your financial problems. They work in conjunction with credit counseling, financial education, and budgeting help to get you on the path to financial well-being. It’s time to get control over your financial future. Learn more about debt consolidation.

Trim Your Transportation Expenses

Auto Refinance

Cutting back on transportation can be as easy as refinancing your auto loan with NASA Federal Credit Unionif you have an auto loan. If you’re paying more than you’d like, consider downgrading to a smaller, less expensive car, or one that costs less in maintenance and upkeep.

Ask yourself if you really need a car, or if your household needs as many cars as you have. One less car means lower monthly costs on car payments, insurance, gasoline, and repairs.

If you’re looking to save on auto insurance, be sure to compare apples to applesthe coverage you’re getting should be the same, with a lower price. If you’re taking less coverage, be sure that makes sense long-term. It’s a good idea to shop around for insurance every year or two, and you might save more by combining your home and auto insurance into one policy.

Bill White Talks Family Mortgages on WUSA 9

On Tuesday April 29, 2014, our mortgage expert and VP of Real Estate Lending Bill White spoke with WUSA 9 about the spring mortgage market. He discussed the advantages of using a credit union for your mortgage over a big bank, as well as the Family Mortgage* available from NASA Federal. Through the Family Mortgage, young adults with limited resources can take advantage of their parents’ financial qualifications. Here’s how it works:

  • Parents are added as co-borrowers on the loan and are not required to live at the residence
  • Exit flexibility so parents don’t get locked in – ask us for details
  • It’s also a great way to help an elderly parent secure a new home

Learn More

equal-housing-lender*Special loan programs offered to well-qualified applicants. Some restrictions may apply. Offers valid for primary residences only. Speak with a NASA FCU First Mortgage Loan Specialist for loan details and rates. NMLS Registry.

JSC Shred Event Results

Shred Retouched

Our Shred Event at the Johnson Space Center helped save 60 Trees

In an effort to help save Johnson Space Center employees from potential identity fraud, NASA Federal Credit Union sponsored the JSC Shred Event on April 3, 2014. The event enjoyed a great turnout, lots of enthusiasm, and tremendous results, with over 3.5 tons of paper collected for shredding in less than 3 hours. But that’s not all!

Aside from significantly cutting down on potential identity fraud,  the shred event also helped preserve the environment. See for yourself:

Environmental Savings

Financial Value

60 Trees Saved

$15,000

24,500 Gallons of Water Saved

$110

14,350 KW of Energy Saved

$1,150

201 Pounds of Pollutants Kept from Atmosphere

$1,010

18 Cubic Yards of Landfill Saved

$900

TOTAL FINANCIAL VALUE

$18,210

NASA Federal was thrilled to help Johnson Space Center employees avoid potential identity fraud – all while helping the environment.

Heartbleed Bug: Your NASA FCU Accounts are Not Affected

You may have heard the news reports regarding security vulnerability called Heartbleed. The Heartbleed Bug affects OpenSSL-an open source software widely used to encrypt Web communication.

First, we want to assure you that your NASA Federal Credit Union accounts are not affected by the Heartbleed Bug.

Do Our Members Need to Take Action?

NASA FCU Member Accounts have not been affected however we always encourage members to routinely change their passwords and to continue to take proactive steps towards protecting their personal information from fraud. We also encourage members to be cautious of what sites they visit, sign on to, and what links they click since these may be unsecure.

Members can visit the NASA FCU Security Center for more information on protecting themselves from fraud, as well as the steps NASA FCU takes to keep their information secure.

More information on the Heartbleed SSL can be found at www.heartbleed.com.

Cherry Blossom Run 2014

On April 6, 2014, approximately 64 NASA FCU volunteers, 64 community volunteers and 14 NASA FCU runners participated in the 10-Mile Credit Union Cherry Blossom Run. Each year, the event brings together credit unions from across the country in support of the Children’s Miracle Network.

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