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Did you know that 38% of U.S. households juggle credit card debt from month to month, according to the National Foundation for Credit Counseling? This is a staggering number, although if you’re in this situation then it may be some consolation to know you’re far from alone.
Mountain Ridge Associates have some tips below on how to manage credit card debt.
But first, let’s have a look at preventing the situation getting any worse.
Ask yourself Do I Really Need This?
When I have been in credit card debt, it’s often as a result of purchases that I didn’t absolutely positively have to make. Can you say the same thing?
I remember – I’m in a store and I find that latest gadget/pair of sneakers/iPhone accessory (delete as appropriate!) and out comes my credit card, and I thought… it’s not real money… I can pay it off later… I really want this and it looks so cool… etc. But it was a trap! I didn’t really need these things but as a credit card can feel like free money then it’s easy to think ‘so what?’
Mountain Ridge Associates say: Be brutal with spending choices
This is the danger. It isn’t free money. In fact it’s very expensive money, when you don’t really need the item. Frivolity is a very costly process.
We have to be real brutal with ourselves! Do I REALLY need this item I am holding? Will I starve or be injured if I don’t have it? Will not having it cause me severe detriment? I don’t know of a single pair of sneakers or gadget that could cause us to answer Yes to those questions, do you?
Pay off as much as you have each month
The obvious answer to getting out of credit card debt is to pay off as much as you can, and prioritize the most expensive debt first (as these should be paid off as soon as possible and above other forms of less expensive debt.) These are:
- Payday loans
- Credit Cards
- Store Cards
I say pay off as much as you have (all your income, except what’s already committed elsewhere, e.g. mortgage payments.) Every last penny. It’s better to get into the habit of using all your income to pay off your credit card debt, and then using your credit card to pay for essential purchases – this way the net flow of payments goes against the debt balance.
For example, after mortgages and other costs, I might have $500 from my income. I say pay $500 off my credit card balance. Even if, later in the month, I use my credit card to purchase $100 of groceries. The net effect of this is that I have paid $400 off my credit card balance, but the effect of the early payment of $500 has had a positive effect on reduced interest payments (on most cards, interest is calculated daily.)
Constantly nibbling away at debt is mathematically sound! You really should do this if you’re not already. There is a sense of achievement and each payment is a small victory to be celebrated! I know this because I have been there myself and each payment feels like progress, and each creates a bit more certainty that the debts can be overturned.
Mountain Ridge Associates say: Don’t use your credit card to obtain cash
Using your credit card to obtain cash is a Big Mistake. Look at it like this – for every one dollar you use as cash, you’re going to need more than one dollar to pay it back. Interest accumulates on cash advances as soon as you take it from the ATM – it’s not like purchases where interest starts accruing after the balance payment date.
This is because on purchases, the merchant pays a fee to the credit card company for the benefit of using the service. When you take out cash from an ATM, there is no merchant in the transaction so the credit card company lands you with a fee in the form of interest. This is bad. Credit card cash is a very expensive way of having some of the folding stuff in your pocket.
It’s a fair statement that most people know very little about money. In fact, 96% of Americans failed a Financial Literacy Quiz. This isn’t to suggest these people are stupid, just not savvy about what is really a very complex and misunderstood subject. Thing is, credit cards are (and have always been) intended for very short term use – not as a long term debt product – but most people don’t realize that and get into this form of debt very easily (and the credit card companies make it very easy for us to do so!)
We need to be in the know! I am not recommending that we do a degree in finance – but something much easier like this book: Home Finances for Couples: Resolve Money Problems in Marriage and Learn Easy Steps to Manage your Family Budget. Books like these are written for people like us – and address the everyday challenges of managing personal finances and debt.
Get Professional Help in clearing your credit card debt
Sometimes, debts escalate to extreme proportions and can’t be serviced using tactics above. In these situations, there is only one way that is going to get you out of this situation and that is to call in some professional help from experts that understand the rules, regulations and mechanisms for resolving debt.
I do want to acknowledge that seeking help is a courageous thing to do. It’s a sign of strength, not weakness. The professionals work with many people, and have seen many cases like your own before. Nothing will surprise them – so don’t be ashamed.
Mountain Ridge Associates are experts in consolidating credit card debt, and restructuring it into other forms of more manageable debt. Of course, there is a fee for these services but that will be an insignificant amount when compared to the savings and reduced stress and worry. You’re really buying peace of mind and a more assured future. And who doesn’t want that?