I have always been a good manager of credit. A big part of that was learning from my mom and pop about spending within my income, but another part of that was that back when I was a kid, credit cards were not the way people paid for what they bought. Today it’s a totally different world and using your credit card is not only popular, it’s almost a requirement and the result is credit card debt.
While Visa and MasterCard didn’t even exist until the 1960s and 1970s, everyone today seems to have one, two, or even more of them, and uses them constantly. That has led to massive overuse and huge debt run up for many people.
If that has happened to you, what do you need to do now? The answer is to fight back against credit card debt and eliminate it. Sounds simple, but in order to do it, you need a real plan and that’s the subject of today’s post.
Who Has Credit Card Problems?
It’s not always irresponsible spenders who run their credit cards into the ground. Although it is true that thousands of spenders just don’t know how to handle their cards and not ruin their credit, it’s also just regular folks who do too.
A huge number of credit problems are among average people who just use credit to run their day-to-day lives and fail to control spending and keep up with their payments. If you don’t spend with thought and track your credit spending and payments, you can easily fall behind and have serious problems.
I personally know and have tried to help numerous people with serious credit card debt. Even those with “good” credit ratings who are living moderate lifestyles can fall victim to overuse and spending with credit cards. Then there are the others.
The others live well above their means, spend without thought, and make little or even no payments on their cards and debts. You probably know someone like that. Chances are they have had to declare bankruptcy, had their homes foreclosed, lost the ability to get credit, and are desperately trying to recover from that, and it could take forever to do so.
A Real Plan to Defeat Credit Card Debt
Your debt doesn’t have to be tens of thousands to be ruining your life. Even debts of $10,000 or less can make your day-to-day money management super stressful.
The first thing you must do to fight your debt is to look at where you money goes every month. Yes, look at your budget! You do have one, right?
If part of your budget is that you are paying huge percentages every month on your credit card payments, you have a problem. While paying is certainly a must, ask yourself if what you are actually paying makes any sense. It may be your payments are not effective and it’s costing you the chance to eliminate your debt as soon as possible.
Change Your Budgeted Items
The first thing I recommend to do is look at where you can save money every month inside your budget. Saving money in your budget spending does two things. First, it makes your spending less. And second, it frees up some extra money to help pay off your credit cards debts faster.
In a real life scenario of someone I was helping out recently, I found savings of over $400 per month by doing just that. Here’s how.
Refinance (for free) your auto loan. Reducing the interest rate by 3% saved over $25 a month immediately for the remainder of the loan of five years.
Note: Consider refinancing your mortgage, too, if you can. But only do it if the savings is significant. The cost of it can be rolled into your mortgage and it still produces real monthly payment interest reductions for years and years!
2. Reducing life insurance
Reduce your life insurance coverage if you are older and only are concerned with covering your funeral costs. It’s free and only takes a phone call. By doing so, reducing the coverage from $20,000 to $10,000, saved over $45 a month at no cost for this senior who does not plan on leaving insurance proceeds to her grown children.
3. Open a No-Interest Credit Card
If you have a “good credit rating”, offers to open a no-interest card that allows 18 months without any interest charges arrive every week. Use that to actually make payments towards your debt and not rack up any new interest now and for the next year and a half.
Consolidating as much of your old credit card debt to the new card as you can and paying off the older higher balances and interest on any other cards first will cancel that debt fairly quickly.
Doing this allowed normal monthly payments to actually be lower and saved $200 per month. All of the payments now go directly to both principal and interest and the cards will be paid off faster and in full now in 18 months!
4. Limit New Charges
Limit new credit card use immediately for everyday purchases from the current new charges of $500 to $350 per month (save $150) and only use your “no interest card” when you do.
By going through your budget line by line, you can identify the areas where you can make changes and put those savings towards paying off your credit card debt sooner.
Every day I see and hear of people dealing with debt and I wonder why they don’t have a plan to get out of it. Instead, they are planning vacations, shopping for new cars, and buying things that they don’t really need but want. That’s exactly a formula for increasing debt and ruining your credit.
If you make unlimited money and your name is Buffett or Gates, perhaps you won’t ever have to deal with debt that worries you. Funny thing is that those guys don’t run up unpayable credit charges the way the rest of us do.
Earn more if you can. Save more if you can by shaving your monthly budget. But the best way to fight your debt is to make a plan and take action now. The longer you wait, take no action, and don’t make and use a real plan, the worse your finances will become. Don’t let that happen to you.
Have you ever been in credit trouble? Are you in credit card debt trouble now? What is your plan to get out of debt? Are you ready for a debt-free life?