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Credit card debt is the third largest type of indebtedness in the US, following mortgage loans and student loans. Averaging over $15,000 per indebted household per year, credit card debt is a serious source of financial insecurity for American families. Clearly, the current shift from credit reliance to more financial independence is a welcomed change. Yet, many are still unsure of how to eliminate their debts. Attaining a debt free life takes time, perseverance, and sacrifice. Over 46% of American households have a credit card balance: if you fall into this percentage, you can start reducing your credit card reliance by starting small.

Financial gurus, such as Dave Ramsey, suggest that those in debt start with the smallest debts, and start now. Large debts, like home loans, are far more challenging to pay off than smaller debts, such as payday loans and credit card debt. Many people who attempt to attack the largest debts first end up getting discouraged with the amount of time it takes to make a dent and end up falling back into bad spending habits.

Eliminating small debts allows individuals the opportunity to see the results of their hard work, which can be a great motivation to stay on the track towards financial independence. Because payday loans tend to have shorter term loan periods and higher interest rates than credit cards, unless said cards are used to obtain cash advances, they should be first to be paid off. Allowing payday loan debt to compile and rollover is a very bad idea; not only will it postpone your financial independence but it will accrue a great deal of interest and late fees. Pay off these types of loans immediately.

Once borrowers are free and clear of short-term loan debt, they should focus their attention on reducing credit card debts. Again, the borrower should begin with the smallest balance and work towards the larger balances. After one card is paid off, the amount allotted to the previous card’s payment should be applied to the next largest balance so that the amount being expended each month remains consistent until all debt is relieved. This method allows the indebted to see their debt diminish without dramatic changes in their budget. Consistency is important, as it helps instill smart budgeting practices and reduces credit reliance.

After paying off small debts, the indebted can begin to invest in bulking up their savings accounts or paying down their larger loans. While most financial experts suggest that everyone should have an emergency savings account of one month’s income, adding to this amount is always a good idea. On the other hand, the money that was previously being put towards credit and payday loan debts can be applied toward larger debts, such as a mortgage, student or car loans. In either case, the money that the indebted saves when relieved of smaller debts will help them to establish a more secure financial future and aid them on the road to financial independence.

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