Young adults are more vulnerable to the risks of credit cards. Inappropriate use of these cards can pile more debts to existing ones. Last year’s statistics show that American households increased their credit card debts by 3.3% or $15,611 per household. That translates to $8.8 billion in national debt.
So what does the young adult need to do with credit card debt? How does one get out of the cycle? Some suggest that financial literacy should be included in the high school curriculum where the students need to pass the course as graduation requirement. However, teachers in debt may not have the reputation to be truthful to their students.
The following are the general guidelines for smarter handling of credit card debts.
1. Pay more than just the minimum. Paying just the minimum is actually a trap. Paying the least amount seems appealing but the unpaid balance only gains interest over time. It adds up quickly leading to more costs in the future.
2. Monitor spending. Reviewing credit card statements over the last three months provides a picture of all unnecessary spending. Curbing all these unnecessaries frees up some amount to pay the principal. This is smart spending.
3. Pay credit cards with higher interest first. This is more appropriate especially as the first step toward getting debt free.
4. Build an emergency fund so that when a transition emerges, there is no need to incur more debts to defray unexpected expenses. As a general rule, emergency funds should have at least three months’ worth of expenses.