BY LISA S.T. DOSS
Credit cards often feel like a weighted chain pulling you deeper into the obscene four-letter word, debt. On average, American households owe more than $15,000 to credit card companies. While it may feel overwhelming, you, too, can acquire financial freedom by forming new habits and assessing current bills.
The Monthly Plan
Sometimes, knowing where to begin is difficult. Debt may continue to grow on a statement, but you may not know why. Determine whether you are providing the expected minimum payment by the due date. How high are your rates, and how much are you paying in interest? When the bigger picture is understood, you can move forward by preparing a viable plan to suit your financial situation.
- Use a Spreadsheet: Whether you prefer a notebook, spreadsheet or online program, it’s a good idea to establish a monthly budget to see how much you spend per month. The visual helps you pinpoint your spending, tracks payoff progress while identifying ways to save money.
- Designate a monthly budget for three of the uncontrolled expenses – cash needs, food and gas. Perhaps, you need a fourth expense titled insurance and taxes. Most importantly, include savings in your budget! Treat it as an expense to ensure money is readily available for emergencies.
- Some credit cards offer an incentive for spending. While receiving a $50 credit every quarter is helpful, spending with multiple credit cards requires a delineation to associate one card with food or gas, for instance. Most importantly, plan to pay off each account monthly!
- Create an online account to check your credit card balances weekly to ensure you do not exceed the earmarked amount.
- Start looking at changes to your monthly expenses. Do you need a landline? Can you use YouTube and Netflix and eliminate the high expense of cable? Start packing lunch and limit your mid-day purchases, including snacks and drinks. Is it possible to welcome a roommate to your living situation?
Cut and Destroy
High interest rates can hold you back from making progress! Reach out to your creditor to inquire if a lower rate is available, especially if you have a good record and are a longtime customer. It’s time to cut ties with the card; therefore, destroy it. Don’t try to store it in a box. The temptation may be too great. As you make a plan to pay off the balance, consider increasing your monthly payment or possibly doubling it. Sacrifices may take time, but you’ll reduce the percentage of interest while lowering your payment.
Tip: Do not close accounts once paid. It will cause your overall utilization to increase. Allow your efforts to reflect upon your credit score!
Paying Off Multiple Cards
It’s easy to create a mindset of buying now and paying later, except when money is not readily available to make up the difference. Juggling several credit cards leads to multiple accounts to manage. Financial guru, Dave Ramsey, recommends to his readers and listeners the option of using the debt avalanche method, which concentrates an effort to pay off cards in full starting with the highest interest rate. Once paid, move the funds to boost the next card. As a viable, logical method, it offers a plan to pay off multiple cards quickly.
Is a Balance Transfer for Me?
Through online searches, irresistible deals are available for those who seek 0% interest on balance transfers. In filling out a new application, most credit card companies offer a set timeline for payoff, typically 12 to 15 months. Transferring large amounts often includes a 3% upfront transfer fee. Before jumping forward and agreeing, refer to your financial spreadsheet to determine whether or not you can afford the payments for the duration of the promotion.
Living Without Credit Cards
Accepting the challenge of saying goodbye to credit card debt will take you from holding the mountain upon your shoulders to financial freedom. In cutting and destroying credit cards, the next logical step is to live without returning to the added cost in spending! Removing debt will change your life!