Coffee is Not the Problem, Interest Is

Why do people seem to think their financial troubles are solely due to their Starbucks habit? Personal finance gurus love to talk about how making coffee at home will somehow allow you to retire 10 years earlier. Some coffee quitters are so proud of themselves that they want to spread their gospel -- one of these students was so proud of their genius that they made a coffee calculator.

The media likes to blame young people for their financial struggle, as if we are so self-involved and irresponsbile for accumulating debt that we forget to pay our rent because we're addicted to coffee.

When talking about one young person in debt, one journalist writes:

Serves her right, you think? Many twenty- and thirtysomethings raised on MTV and InStyle magazine have tried to mimic the glamorous lives of the rich and famous through the use of credit cards. (MSNBC, February 8, 2006)

But the truth of the matter is that tuition, housing, and life in general is far more expensive than it used to be, and most of us never really learned how to deal with it.

This culture of self-loathing for buying a pair of jeans or a sandwich for lunch is only making matters worse. I've seen people move in with creepy strangers to save on rent or become hermits in order to spend less. But for plenty of young people, you can take control of your debt without really changing your lifestyle.

As of 2001, the average credit card debt of an American aged 25-34 was $12,000. This number is sad, but not because people are spending too much. The problem is getting trapped by credit card interest and finding it impossible to dig yourself out of the hole. Thousands, maybe millions, of Americans are accruing more debt in interest than from new spending.

So if you have credit card debt, spending might not be the problem. In my first post, I talked about someone with credit card debt and student loan payments. One of his many mistakes is making extra student loan payments instead of focusing on the credit card debt.

Here are a few tips on getting rid of credit card debt:

1) Take advantage of a 0% Balance Transfer Offer
A fairly easy to obtain way to buy some time to keep yourself afloat is to transfer your credit card balance that is accruing a lot of interest to a card that will charge no interest for 12 or more months. This is a great way to attack the debt, and if you aren't finished within 12 months, you can transfer the debt to another 0% card!

If you don't qualify for a balance transfer, you can probably move your debt to a card with a low introductory APR to reduce the burden of interest piling up.

2) Focus on the right kind of debt
When attacking debt, prioritize your payments first on the highest interest rates. Don't make advance payments on your student loan payment or mortgage payment if you have credit card debt. Interest rates on these loans are lower and the interest paid is tax-deductible. Pay the minimum on these loans until you can erase your credit card debt.

3) Never miss a payment
Missing a payment can have really negative consequences on your credit history, and it automatically tacks on fees and high interest rates for most credit cards. If you are a forgetful person, consider a credit card that automatically deducts a certain amount of money from your bank account.

While giving up bad habits is always good, don't deprive yourself of things you enjoy when you might be able to manage your debt by transferring your balances and minimizing the impact of high interest rates.

Here is a list of cards that offer 0% Balance Transfers for 12 months.

Now stop thinking about moving to a sketchy place on craigslist and find a new credit card that will let you conquer your credit card debt. Do the math, you might just be able to afford an overpriced latte more often.

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