How To Free Yourself Of Credit Card Debt
Are you concerned about your escalating credit card debt and don’t know where to turn? Do you fear answering your telephone or checking your mail because of your credit card status? Or are you just anxious about managing your credit cards, especially when shopping?
Well, worry no more as I will provide you with some suggestions to help reduce and hopefully ‘free’ you from your credit card debt. However, be WARNED! This challenge is not for the faint-hearted and will probably require gut-wrenching sacrifices, financial prudence and maybe even divine intervention. Notwithstanding the foregoing, if we invoke the biblical injunction of ‘I can do all things through Christ who strengthens me’ and the first tenet of the optimist creed which commands that we ‘promise ourselves to be so strong that nothing can disturb our peace of mind’; we are ready to delve into the pursuit of credit card freedom.
Your aim in managing your credit card debt is to have one primary credit card (preferably denominated in local currency, if you do not earn foreign exchange) which you should use for emergencies, necessities or purchases that you can repay within a 1-2 month period. Firstly, do not accept limits above an amount that you can repay in three months. Secondly, resist conspicuous spending (I know it’s easier said than done). Now that we have taken a peak into what seems to be credit card fantasy land, let us look at some methodologies that may make the dream reality.
FORMULA TO ‘FREE’ YOURSELF FROM CREDIT CARD DEBT
Find out your status.
To correct the problem, we must first examine the current situation. If the information is not readily available on your credit card statements or online, please contact your financial institution immediately and ask these pertinent questions: What are the current interest rates and the balance(s) on my credit card(s)? What are the other fees associated with my card? What is my statement date and explain how I can extend my credit usage by knowing this date? Do you offer facilities at lower interest rates on a reducing balance basis to liquidate credit cards?
The objective is to always operate credit cards with the lowest interest rates, little or no fees and to maximize the use of the credit period available to minimize interest. Additionally, because the liabilities are already on their books, financial institutions may elect to refinance your credit card, subject to applicable conditions, if you ask.
Armed with the answers to these questions, the next step is to prepare a budget and assess your monthly income and expenditure. For many people, when they put their budget on paper, they realize that they are spending more than they actually earn. This budget deficit is usually financed by credit cards, monies borrowed informally or personal loans from an institution. The shortfall in the budget is what must be addressed to liberate you from the debt mire. The reduction of one’s expenses is a basic concept that if applied with determination and strong resolve, will result in a manageable standard of living and more cash for debt reduction. REALITY CHECK – to extricate yourself from debt you need to either reduce spending or increase your income. I know it seems impossible in these challenging economic times, but you MUST find a way to win the small battles (incremental increases in income and small reduction in expenses), in an effort to win the war against debt. YES YOU CAN!
Reduce your credit card debts.
The fundamental rule of operating a credit card is to repay the outstanding balance in full each month, on or before the due date, and use the card for convenience within budget. For the record, based on how credit card systems operate, if your payment is one cent short, you pay full interest on the entire balance for the applicable statement period. If total liquidation proves to be a challenge, then you should do everything possible to try and pay above the monthly minimum requirement to steadily reduce the debt. The aim should be to always have a source of repayment like a partner draw, cash surrender value on a life insurance policy or salary payment to liquidate the debt created by purchases, in the shortest possible time. Additionally, you should use your credit card on a monthly basis to pay as many of your bills as possible, as this will result in the reduction of your monthly interest payments.
Notwithstanding the foregoing, the reality is that somewhere along the line we may have lost focus, lacked discipline or just had to charge something to our credit card as a last resort. To get back on track, review the purchases that were charged to your credit card and source funds to treat them with forthwith. You may be surprised at the amount of money you spend flippantly or on conspicuous consumption, without having a defined source of repayment. It is imperative that we learn from this experience and not have a repeat in the future. Create a purchasing and payment plan, but ensure that you stick to it.
Do you have more than one credit card with limits totally exhausted? You may elect to borrow from a friend or family member (hopefully interest-free) or reduce your savings to assist in reducing your credit card debt. Because the interest rate on the credit card is higher, you can begin saving the interest charges that you have not incurred each month to replenish your resources. Another way to deal with such a dilemma is to identify the card with the highest interest rate and make the highest possible payment before the due date (you may elect to convert foreign currency cards for comparison). Every effort should be made to pay above the monthly minimum on the other cards but focus your energies on the card with the highest interest rate. After total liquidation, focus on the card next in line in terms of high interest rate until your debts are repaid. Ironically, some persons may prefer to repay the card with the lowest balance first in an effort to reduce the number of payments. Whilst not being the most effective method, this facilitates peace of mind and will provide excellent motivation to keep you focused and committed to reducing your credit card debt. After achieving your objective, use one credit card that has the lowest interest rate.
Explore lower cost options.
Exploring lower cost does not only speak to lower interest rate facilities, but includes a review of switching costs such as commitment and documentation fees to ensure a cheaper alternative. If possible, try to have your credit card debts transferred to a credit card with a lower interest rate or a loan, to allow a monthly reduction of principal. As mentioned earlier, many financial institutions offer debt consolidation facilities which allow customers to merge all their existing debts, including credit card debts, into one affordable facility at a lower interest rate. There are opportunities to be gleaned from your challenges and excellent solutions are available to deal with your situation.
Evaluate your status frequently.
Always look for ways to improve your budget and make sure it is working for you. It doesn’t matter if you are a busy professional with limited time on your hands; an individual who needs protection and professional supervision of their financial affairs, or just a couple trying to eliminate the stress and pressure of juggling the family finances and paying the bills, frequent reassessment is a MUST. Make a budget, stick to it and adjust it frequently to adapt to life’s ever-changing scenarios.
The old adage says ‘nothing in life is free’ and this is as true today as it ever was. The idea that a credit card is ‘free’ money is the beginning of the credit card debt trap. Of course, having a credit card has distinct advantages if you manage it effectively by buying what is necessary, making sure your expenses correspond with your income and plan your expenses ahead of time. Having a credit card for travel is also good, as it reduces the need for cash and of course, it will become handy in emergencies. A credit card is an instrument that offers convenience, security and when used properly, peace of mind.
This ‘FREE’ formula is merely a guide that renders itself useless if no action is taken. It will require an investment of time to research the options by calling financial institutions to compare, reading literature to better educate yourself and most importantly, EXECUTING the plan created to ‘FREE’ yourself from your credit card debt.