Paying Off Credit Cards
Posted 06/04/09
2008 was a rocky financial year for most everyone in this country. The decline of the real estate market and the credit crisis left many wondering what to do next. As consumers look to 2009, many are trying to regroup and figure out a plan for their financial futures. Some are shaken, but will weather the economic storm okay. Others have racked up debt on their credit cards and are seeking ways to reduce or erase that debt. On average, a person in the U.S. has about four credit cards and about 40 percent of card holders regularly pay their monthly balances in full. Credit cards have become a staple in everyday financial transactions. They are a convenient and useful tool, if used responsibly. But credit cards can also offer an opportunity to overspend. Once debt is accumulated, it takes a disciplined routine to climb out of it.The first step to reducing and eliminating debt on your credit cards is to stop making purchases on the cards. It seems obvious, but it is extremely difficult to pay down debt when you are accumulating more. Also, resist the urge to apply for new credit cards. Alter your spending behavior. Start using your check book, debit card or paying with cash. Next, examine your budget to determine where you might be able to cut expenses. The easiest way to do this is to cut your discretionary spending. Start taking your lunch to work, making your own coffee and get rid of unnecessary entertainment expenses. Take the money you save on those discretionary items and put it toward the balances on your credit cards. If you cannot cut your budget any more, you may look into picking up additional work or selling unnecessary big ticket items (like downgrading to a less expensive car).
Once you clearly understand your finances, make reducing the debt on your credit cards your priority. Make more than the minimum payments on the monthly statements. When you make only the minimum payment, you are paying a significant amount of interest. If you pay more than the minimum, you will pay down more of the balance. If you have debt on many credit cards, focus on paying off the one with the lowest balance first. It is much easier to focus on one card at a time, and you will be encouraged to move onto another card once you pay one off. Whenever you have extra money, make an extra payment on your credit cards. After you begin to eliminate the debt on your credit cards, cancel the most recent cards and keep the one you have had the longest. A card that has a long and solid history with you will help your credit score. Maintain your commitment to paying off your debt until the balances on all your credit cards have been paid. If you start using your cards again, remember how hard it was to pay off debt. Pay off your balances in full and view your card like you would a check or cash. Remember that you will have to pay for everything you put on your credit cards.