The Federal Reserve reports that American consumers have boosted their debt for the second consecutive month as of November. The good news is that this debt includes student loans and installment loans such as vehicle financing. Credit card debt levels continue to fall as consumers fearing uncertain economic conditions and unemployment continue to pull back on discretionary spending.

Debt: The Good and the Bad

When it comes to debt, it may seem that no debt is good debt, but financial experts frequently suggest that debt including a home mortgage and student loans can be considered “good debt,” or worthwhile investments. Debt including credit card balances and discretionary purchases of expensive vehicles (which quickly depreciate in value) and other non-essential goods are considered “bad debt” due to the costs associated with carrying balances. Think about it; if you’re carrying balances for expensive nights out, theater tickets, and buying the latest fashions on credit, you’ll  be paying off credit card debt after the meals and performances were enjoyed and the latest fashions have become yesterday’s news.

Credit card debt: A direct obstacle to financial security

What exactly is financial security? In times of economic challenges, being able to pay your monthly bills may represent financial security in the short term, but most of us must also plan for supplementing social security and/or pensions received from employers. It’s also important to have liquid savings on hand for taking care of emergencies and meeting living expenses when you become unemployed or cannot work. Paying off credit card debt is one of the best “investments” you can make. Here’s why.

Investment and savings income typically lower than credit card debt costs

We’re not suggesting that you should not contribute to savings, but if you compare the annual yields (interest paid) on savings accounts, certificate accounts, and most investments, they’ll be less than the annual percentage rates (APR) paid on credit card debt and other unsecured consumer debts. Let’s say the APR on your maxed out credit card is 12.99 percent. By paying off this balance, you’ll effectively be receiving a 12.99 percent return on funds used for repaying the debt. Gaining debt relief through paying off credit card balances is a strong first step toward putting your financial house in order.

Finding debt relief when you’re in too deep

Credit card debt can quickly increase due to poor budgeting, high finance charges, and the addition of penalty fees for late payments. If you’re running out of cash before pay day, or juggling bills each month, these are signs of debt problems that can potentially lead to credit problems and filing bankruptcy.

If you’re facing insurmountable debt, please seek debt help from a credit counseling and debt consolidation program.

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