For many people, a credit card is a necessity. It serves as a ready substitute for hard cash, prompting many a buyer and shopper to think of this sheet of plastic as a reliable best friend. The credit card must always be used responsibly, though, as this erstwhile friend can easily become a bloodsucking enemy after a string of mindless purchases, leaving the hapless card holder with huge credit card debt.
Be ready to be hounded by 'pay up now' phone calls from your card company, especially when you go beyond your budget, maxing out your card. Not paying up right away negatively impacts your credit history. With a bad credit record, it will be difficult to get loans from banks, rent an apartment, buy a car, or even get a good job. Before things go from bad to worse, it's better to get rid of the debt as soon as possible.
Falling for the Trap
With the convenience that the credit card offers, a lot of people tend to spend more than what they earn. Unfortunately, purchases made with credit cards are often those items that are “wants”, not “needs”. In other words, most bought items are not essential, just a result of impulsive buying. Once the credit bills come pouring in, that's the time misery creeps in.
Even if you will be paying your credit card on an installment basis, interest rates will inevitably add to the expenses. Also, failure to pay on time will often lead to penalties like surcharges or increased interest rates. You can just imagine the added charges that people with multiple cards have to deal with.
Getting Rid of the Debt
Who doesn't want to be debt-free? Getting rid of debts may not be as easy as swiping the card through the machine, but when carefully assessed and planned, the payment process can be not too burdensome. The duration of you paying off your debt depends on your income and the amount that you owe. If you really want to get rid of your debt, you should stop spending on the non-essentials, at least until you've settled your debt.
Paying for the Debt
To make things more organized, tally the amount that you need to pay. If you own multiple credit cards, list them and indicate the amount you owe, the minimum payment required, and the Interest rate.
Once you have a tally of your credit card debts, determine which of the cards you have to prioritize. You should pay down the debts from the credit card that charges the highest interest rate. Now, refer to the minimum payment required. Most credit card companies require a minimum payment to be made every month, depending on the debt you owe. As much as possible, pay more than the minimum. It may cost a bit in the short term, but you will save a lot on interest rates in the long run.
If you are not comfortable with paying the card that has a larger interest rate, then start paying the card that has the smallest balance. With this method, you can gradually adjust to the outright deduction from your salary to pay debts. For example, you have three credit cards and you pay the lowest balance first. You decide to pay $30 every pay day to that card. After paying it off completely, pay the next lowest but add a little more over the minimum payment, say $35. Do that until you pay off all your credit cards.
Don't be afraid to contact your credit card company if you have some difficulties in paying. These companies offer various payment schemes, one of which might just be suitable to your financial situation.
Preventing Debt
The feeling of finally getting rid of your credit card debt is truly satisfying. Still, the temptation is everywhere. You do not necessarily have to get rid of your credit cards – they are not evil, per se. It is just a matter of being responsible in what you spend.
If you own several cards, consider maintaining only two. Having more will tempt you to spend more, which may eventually lead you back to debt.
Having a structured budget is surely going to help you, too. This will lower the risk of overspending since every item will have a particular budgetary allotment, giving you a clear outline as to what to buy and what not to buy.
Lastly, never forget savings. The right formula is deducting a specific amount from your income, and not whatever is left from your income. Savings come in handy in times of emergencies or when you suddenly overspend. You can tap into your savings without having to borrow from a friend or a creditor. Make sure that you consistently deduct your savings from your salary. It does not have to be a huge amount, even $50 every paycheck can mean a lot.