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When paying credit cards can hurt you

Some Florida residents may wonder when and in what kind of increments they should attempt to pay off their credit cards. Many people dislike carrying these high-interest debts, so when they receive a lump sum, it's natural for some to want to use it to take a noticeable chunk out of their credit card debt. However, paying off cards too quickly or in unrealistic increments can sometimes be a mistake.

According to one study, the average interest rates on credit cards with a balance is 12.76 percent. The average American adult has approximately $4,878 in credit card debt, not counting cards with zero balance or credit cards issued by stores. In contrast, the interest rate paid on the average certificate of deposit is currently below 1 percent, far less than what is being paid on those cards. Therefore, it seems to make perfect sense to use a windfall to pay high-interest debts.

However, people who pay cards without addressing the reasons for the debt may find themselves with high balances later. To stay out of debt, there are three essential steps to follow. The first step is to stop using the cards. Use only cash or debit cards until the debt is paid in full. Second, it is important for people to understand why they have credit card debt. A financial review can help people see if they are spending more than they make or if they have high recurring expenses that can be trimmed. The third step is to develop a realistic goal to pay off debts while keeping some savings for emergencies.

Credit card debt can often feel overwhelming. When people struggle to pay debts, a bankruptcy attorney may be able to help negotiate settlements or payment plans. Additionally, an attorney may be able to help consumers determine whether bankruptcy is the best option to eliminate debt.

Source: Forbes, "When Not To Pay Off Your High-Interest Credit Card Debt", Nancy Anderson, October 11, 2013

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