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Getting A Handle On Your Credit Cards
The most common reason for filing bankruptcy today is excessive credit card debt. Almost everyone has a credit card now, and many of us have let them take control of our finances, and many of us don’t know how to get out. How can you keep this from happening, and how can you get out of it once it does?
Problem With Credit
In our parent’s and grandparent’s generation, credit meant going down to Montgomery Wards and applying for credit for a washing machine or tv. Both the person applying and the store put thought into whether this purchase was a good idea. Both sides also knew exactly how much the purchase would cost in the end, and when it would be paid off. Credit cards and lines of credit ended all that. Credit cards can be wonderful when you want to make a mail-order or online purchase, or if you want to finance a larger item over time. When we get into trouble is when we use it on a day to day basis, irresponsibly.
Being Responsible With Credit
Having a credit card can still be a good idea. You can finance purchases, make convenient purchases online, and have it in case of an emergency. However, you have to be responsible. What is being responsible with a credit card? Make small purchases, but only those you can pay off the next month. If you make a larger purchase, have a definite plan on how and when to pay it off.
The Credit Card Cycle
As your credit card debt increases, so does your monthly payment. Most people treat this payment like a utility. You pay it at the beginning of the month with your other bills, then you live on what’s left of your paycheck. The problem comes when there is not enough paycheck left to live on. Then, you find yourself using the card for normal purchases like gas and groceries. This is the Credit Card Cycle. It can quickly lead to a dangerous situation.
The Point Of No Return
What is the point of no return? If you are in the Credit Card Cycle, eventually, you will max out your credit, and you will face the choice of paying the credit card payment or buying gas and groceries. This is the point of no return. If you are spending more on the card and its interest each month than you are making to the card in payments, then you have past the point of no return. What now? You will have to take drastic steps. You may have to file bankruptcy or work with a debt settlement company to handle your debt.
Credit Strategy
How do you avoid this point of no return? Make purchases responsibly. Stop buying routine items on your credit card. What can you do if you have already amassed a large amount of debt? Make a plan to pay it off, and stick to it. You may be discouraged to find that it may take 5 years or more to pay off a credit card at the minimum payment. However, you can pay it off more quickly and save yourself a lot of money. Let’s look at an example. Say you have $10,000 on a credit card at 10% interest, and you are making $250 monthly payments. I picked nice, round numbers, but you can go to my Calculators Page and calculate your own payoffs using my Credit Card Payoff Calculator.
You can see that it will take over 4.5 years and $14,000 to pay off this credit card. Now comes the what-if’s. Decide if you have any extra money each month that you can put toward this credit card to pay it off more quickly. Then, change the payment, and calculate your new payoff. Make a plan to pay it off in a reasonable amount of time, and stick to your plan. If you have more than one card, start with one. Once it is paid off, you can use the entire amount you were paying on that card to add to another and pay it off very quickly. You will be out of debt and financially healthy in no time.
4 Responses to “Getting A Handle On Your Credit Cards”
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May 5th, 2008 at 7:53 am
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