According to most definitions, the term financial literacy refers to understanding how to effectively manage household finances, handle debt, create a budget, and build savings.
Working toward financial literacy is the foundation of your relationship with money and can set you up for a lifetime of financial health and wellness.
As a trusted national nonprofit, GreenPath Financial Wellness can be part of your lifelong journey to financial literacy, especially in the areas of managing personal finances, budgeting, saving, and managing debt.
Figuring Out Your Finances – Part of Financial Literacy
A situation we see here at GreenPath Financial Wellness when we talk to clients – a gradual increase in credit card debt balances over time with high-interest rates and the ability to make only low minimum payments each month.
A recent client shared with GreenPath about her journey to overwhelming credit card debt. After moving to a new home, she faced expensive purchases such as window blinds, new kitchen appliances, bathroom fixtures and other essentials. She used both her bank-issued credit card and a store credit card to make the purchases. Unfortunately, she experienced a sudden drop in household income during this time, and on top of it all, had to replace a faulty water heater – so it was a quick journey to maxed out, high interest credit card balances.
Many of us can see ourselves in this situation. Perhaps your cards are maxed out, and you are experiencing calls from collection agencies.
The average credit card interest rate is 16.04% according to Creditcards.com. A recent study has shown that about 23% of existing credit cardholders have added to their current debt because of the pandemic.
For people utilizing credit more and having problems making payments or meeting the minimum payments on credit cards, a high balance and accruing interest make it more difficult to get out of debt.
Start Here to Figure Out Your Finances
Figuring out your finances can be tricky. While each person’s situation is different, some steps to take to figure out your finances include:
- Monitor your bills regularly. If your creditor has granted a payment deferment or waived fees, interest could still be accruing. Annual fees could also still apply. It pays to examine each creditor’s terms and fees, to understand where to start paying down first.
- Monitor your credit report to ensure your credit history is accurate. Studies show 1 in 3 Americans never check their credit report yet knowing credit history is key to financial literacy. Regularly monitoring your credit can alert you to errors, protect you from fraud, and provide you important information to strengthen your credit score. GreenPath’s NFCC-certified credit counselors can walk you through a free review of your credit report. You’ll understand how to read your report and how credit scoring works.
- Pay attention to interest rates. If you must utilize credit, try to use credit cards with low interest. Or request a reduction in your interest rate as a hardship option. Not sure how to open the conversation? GreenPath’s caring counselors can help you plan to connect with your creditors for the best options.
- Take action. Don’t ignore the problem! Don’t delay in speaking to your creditors to see what hardship assistance programs are available.
- Review your income and your expenses. Set a simple spending plan. It can be eye-opening when you start to track how much you spend on essential things, like bills, rent/mortgage, and food. A simple budget helps you stay on top of what you are spending. It also shows your progress in setting aside money to manage debt payments.
- Don’t do it alone. Having a fresh set of eyes to review your situation is never a bad idea. Talk to a trusted national nonprofit like GreenPath, who can contact your creditors with you, and ensure you understand your options.
Your Total Financial Picture
For those facing financial challenges, credit cards are typically only part of the picture.
Counselors can help focus on your total financial situation and make a personalized plan to address the debt moving forward. Having a clear strategy for handling your credit card debt can help you feel more in control of the situation and reduce stress.