The major drawback to using credit cards is that too many people overextend and find themselves in the black hole of high interest credit card debt.
As consumers, we are more in debt than the government; not a flattering comparison. Credit card debt is easy to get into and sometimes very difficult to dig yourself out of.
Here are some suggestions to help you stay out of the black hole:
- Do everything you can to pay off the credit card balance every month. Most credit cards have interest rates between 13.5 percent and 21 percent. Paying that kind of interest, except in extreme cases, is just not smart.
- If you can’t pay off the entire balance, at least make a payment that is in excess of the minimum due. The minimum payment amount is simply the interest amount due on the principal. If you only pay the minimum you will never pay off the card. Depending on the balance outstanding, add $50 to several hundred dollars to the minimum in order to eat away at the principal balance. While you’re doing this, try and stay away from using the card.
- If you find yourself knee deep in credit card debt, find some solutions that will help with the burden. Call your credit card company and ask them for a lower interest rate. Believe it or not, this actually works sometimes. They would rather see you pay off the debt than see you in their bad debt write-offs.
- Find one of those credit cards with an introductory rate of between 5.9 percent and 6.9 percent and transfer your balance to get a better interest rate that will make it easier to get the principal paid down. While the interest rate is low, get the balance paid off.
- If that does not work, find a way to consolidate your debts into a regular-term note. These will have a lower interest rate and you will only make one payment every month. When you find yourself in this situation, lay off the credit cards until you have your consolidation loan paid off. Learn from your mistake, don’t compound it by incurring even more debt.
- Take out a home-equity loan and, if necessary, lend it to your company to pay off debts. The interest is deductible for you personally, lower than the credit card interest rate and the company can set up a payment schedule to pay you back.
- If your plan is to pay off the balance every month, enter each credit card purchase into your checkbook as if you had written a check. When the bill comes in, you have already accounted for the payment required in your checkbook and can then write the check without wondering where the cash will come from.
- If you have savings that you do not want to dip into to pay off the credit cards, look at what you are earning on your savings and what you are paying on the debt. One is always higher than the other and it is not your savings interest rate. Use your savings to get out of debt and know that you can always charge an emergency on your credit card. Take the interest charges you are not incurring every month and save that instead.
- If while you are working yourself out of debt, you feel like you are having to do without, do two things. Remember that you got yourself into debt because you spent more than you had to spend. To get yourself out of debt, you will need to reverse that scenario. Look at your credit card statements over that past few years and add up the finance and interest charges incurred. You will be stunned at what you could have purchased if you had not paid it to the credit card companies as interest.