In the United States, 43% of families are spending more than they earn each year, according to MSNMoney. At the end of 2008, the average American household that had a credit card was holding nearly $11,000 worth of credit card debt. With numbers like these, living with debt seems unavoidable and paying it off seems like an uphill battle you are destined to lose. However, if you are interested in living debt-free, here are seven expenses to watch for that may be holding you back from being in the black.

  1. Not Knowing Your Limits
    The Financial Times recently reported that U.S. banks are set to earn $38.5 billion this year from overdraft fees alone, more than double the number from 1994. If you don't know how much is in your bank account, you could easily withdraw or spend beyond your limit or have a check clear that takes your balance below zero. When that happens, banks charge anywhere from $5-$10 in overdraft fees. And that's not all. If you fail to pay back the amount you've overdrawn, you could be hit with even more fees after a set number of days in the form of a large sum (as high as $35) or a daily tariff (often between $5-$10). According to the National Consumer Law Center, the average overdraft fee is $34.65, and considering a purchase as small as your morning latte could put your account in the red, that's a hefty price tag.

    Credit cards fare no better, with late payment fees increasing as well as charges for going over your limit. According to a survey done by the Pew Safe Credit Cards Project in March 2009, 92% of credit cards had a fee for exceeding the credit limit, including 100% of student cards. The over-the-limit fee and the late payment fee were both $39 for most accounts. Also, these infringements can result in your interest rate skyrocketing up to 30% or higher. In fact, that same survey found that 93% of cards allow the issuer to raise any interest rate at any time. And once that rate goes up, it is unlikely to come down. (Find out more in Expert Tips For Cutting Credit Card Debt.)

  1. Fees, Fees, Fees
    Banking and fees go hand in hand. But there are ways to reduce the charges you pay on a regular basis. First, make sure all of the accounts you have open are absolutely necessary. Consolidating multiple checking or savings account could add up to monthly savings of $20 or more.

    Also, make sure you understand what and how you are being charged. Some accounts advertise as being free, but in order to have the monthly charges waived, you may need to fulfill some conditions including but not limited to a minimum balance, not exceeding a set number of transactions per month and/or having a set number of direct deposits or automated bills associated with that account.

    Transaction fees can also add up quickly. Remember, if you withdraw money from an ATM instead of your bank, the average $1.50 fee is charged both by the cash machine AND by your bank. Likewise, most banks include a surcharge on email money transfers. Keep an eye on your account and make sure you know how much these conveniences are costing you. (Learn more about lowering your costs in Cut Your Bank Fees.)

  2. Paying The Minimum
    Approximately one in six families with credit cards pays only the minimum due each month, according to an Experian national score index study. You've probably read everywhere that this is financial suicide, but let's take a look at what the actual damage would be.

    The average interest rate on a credit card in the U.S. is 11.2% according to However, with this kind of payment history, and one-third of credit card holders paying between 20-41%, let's guess conservatively that this family's interest is around 20%. The minimum payment is usually around 2% of the total balance, so in this case that would be about $220 per month. If only that minimum is paid, the debt would be paid off in nearly 77 years, with a total of more than $52,000 paid in interest. Push that interest rate up to 30% and the minimum payment is insufficient to ever pay down the debt.

  3. Credit Card Cash Advances
    You know that getting a cash advance from your credit card is a bad idea, but we'll all been in an unforeseen situation where you need cash fast. So what does this convenience end up costing you? According to, the fees ten years ago were on average 2% of the amount advanced with a $2 minimum and a $10 maximum fee. Unfortunately, today that number has gone up to 3% with a minimum ranging from $5-$15 with no maximum fees. Add these fees to the transactions fees you might be paying and you'll be shocked to see the total amount that disappears from your wallet each month on convenience fees alone. (Read more in 6 Major Credit Card Mistakes.)

  4. Payday Loans
    This expense may be the most dangerous of the all for your pocket book. These highly unregulated lenders do provide a valuable service – if you need cash now, you can get it for a fee and a promise to repay the amount once payday comes around. However, the industry standard in annualized interest is between 200 and 500%.

    These lenders are able to avoid usury laws by calling their interest charges "service fees" which are not regulated the same way in many places. In fact, payday services have been outlawed or severely restricted in 13 states according to (Hold too tightly to this rescue line and you'll soon be drowning in debt. Check out Payday Loans Don't Pay.)

  5. Not Negotiating
    This step can be tricky, but it could also save you enormous amounts of money interest. If you are having trouble paying down your debt, call your creditor and ask to have your interest rate reduced. These companies want your business, so often you will be able to negotiate a repayment schedule that can help you pay down your debt faster. Make sure you ask for the lowest fixed rate – an introductory rate that will shoot right back up in a few months will have you back at square one.

    Don't be afraid to bring up competitors' rates; your credit card company may be more willing to offer a comparable rate if you can get it somewhere else .If the company will only offer you a lowered rate for a set amount of time (usually six months to a year), that is better than nothing. The best part about this step is that there is no harm in asking, only the potential for big savings. (Reducing the rate charged on your credit card balance is the first step to getting out of debt. Check out Cut Credit Card Bills By Negotiating A Lower APR.)

  6. Ignorance is NOT Bliss
    The worst culprit for keeping you in debt is not knowing where your money is going. Make it a priority to keep records of where and how you spend your hard-earned cash. Make a repayment plan and have set goal-dates for paying off debts. Without these tools, it's far too easy to stay in debt. You can purchase accounting software, make a simple (and free) spreadsheet on your computer or even work it out with a pen and paper; just make sure you make a long-term plan for regaining control of your finances.

Debt may seem like a life sentence, but it doesn't have to be. The number one tip for maintaining financial health is awareness. Be aware of your money and where it goes each month, and be aware of the options available to you. There are easy ways to help alleviate the stress on your finances and move from red to black, and the rewards are more than just monetary. (Want to stay in the black permanently? Read Can You Live A Debt-Free Life?)

Related Articles
  1. Professionals

    10 Must Watch Documentaries For Finance Professionals

    Find out about some of the best documentaries that finance professionals can watch to gain a better understanding of their industry.
  2. Budgeting

    6 Cost-Effective Tips for Raising Your First Child

    The excitement of welcoming your first child to your family shouldn't prevent you from making good cost-effective decisions.
  3. Budgeting

    5 Ways to Date on a Budget

    Dating on a budget doesn't have to be boring. Try these 5 tips to find the best dates on a budget.
  4. Budgeting

    7 Kids Items You Should Never Buy Used

    Buying secondhand items is a great way to save money, but these seven kids items should not be bought used.
  5. Investing

    10 New Apps That Help Budget For Expensive Cities

    From platforms for saving money to those that account for side jobs, mobile apps are changing spending habits and income generation in urban areas.
  6. Budgeting

    How Cooking At Home Can Save You Real Dough

    Cooking at home saves time and money but most importantly, it could even help lower future health costs.
  7. Personal Finance

    Money Matters on Campus: Attitudes & Aptitudes

    Financial trends among college students are a cause for concern, prompting a renewed emphasis on financial instruction.
  8. Home & Auto

    Why Housing Costs Shouldn't Exceed 30% of Your Budget

    Financial experts will argue that there’s no problem with allocating 50% of your net income to housing, but that barely leaves enough money for living comfortably. Reducing housing expenses to ...
  9. Investing Basics

    Tiny House Movement: Making Market Opportunities

    The tiny house movement throws all assumptions about household budgeting and mortgage management out the window, and creates new market segments too.
  10. Markets

    Is Another Bear Market Ahead?

    With market volatility recently reaching its highest level, investors are questioning what the outlook is for U.S. stocks in 2015 and beyond.
  1. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  2. Will my credit score suffer from debt consolidation or refinancing?

    You have several options for reducing your debt burden. You can enroll in a professional debt management plan, or consider ... Read Full Answer >>
  3. Can I file for bankruptcy more than once?

    Filing bankruptcy is never a simple decision, but sometimes it is the best thing you can do in your current financial situation. ... Read Full Answer >>
  4. Does consumer protection cover my debts?

    The most impactful consumer protection laws and regulations in the United States are overseen by the Federal Trade Commission ... Read Full Answer >>
  5. Can my IRA be garnished for child support?

    Though some states protect IRA savings from garnishment of any kind, most states lift this exemption in cases where the account ... Read Full Answer >>
  6. Can creditors garnish my IRA?

    Depending on the state where you live, your IRA may be garnished by a number of creditors. Unlike 401(k) plans or other qualified ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!