Dealing with Credit Card Debt
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When you feel you like something very badly and don’t have the cash ready, you might be tempted to use your credit card without any plan of how you will pay for your statement when it comes. Chances are, you will fall into the credit card debt trap. To help you build up your discipline not to fall into the temptation, it is good for you to understand what you will have to go through if you ever get into credit card debt. If you are already in credit card debt, then it will be good for you to take heed of this suggestion.
The highest interest rate charged for loans is the interest on credit cards. When you are not able to pay the complete amount in your statement, the amount due becomes a loan. Unfortunately, interest cannot be suspended and does not end until you pay off your loan completely. Interest rate of credit card loans is usually 3.5% per month. This is 42% per year when the usual loan interest rates are about 12-17% per year. To make matters worse, the amount you pay each month will be used to pay off the interest due on your outstanding balance first before even reducing the loan amount. This means that it is possible that you are paying mostly interest every month and hardly reducing your loan amount.
In addition, finance charges are based on the remaining balance due on the previous billing plus new transactions incurred from the current billing cycle. This means that the moment you get into credit card debt, you have to cancel your credit cards right away and use only cash. Write the company, cut the card and send it with the letter to the bank. Bargain with your credit card company for a payment schedule with a lower interest rate and try to ask for penalties to be condoned.
For those in debt, if it took you some time to build up your credit card debt, it may take you even longer to get out of it especially if you do not start instantly. But do not despair. So many have your same trouble but so many have been able to get out of it because of self control and resolve. Your addressing the problem now is a sure sign that you can do it.
For those who are happily not into any credit card debt, don’t even think that you should try it because anyway, you can get out of it eventually. I assure you that you do not want to create stress for yourself and to waste your time thinking of how you will do this. It is better to deprive yourself now of whatever it is that you want to buy. Save first to get the item rather than allow yourself to get into debt. Look at what you have to go through.
Start right away by “investing in debt”. Arrange a reduced spending plan (actually a savings plan) in writing with specific spending items to be reduced, which will be your source for paying your debt earlier. There should be clear timelines or deadlines to reduce your debt.
Save every dollar possible to pay off your credit card bill. Respect each dollar because it is the start to credit card freedom. Start on savings first, concentrating on “needs” and completely eradicating any “wants” in your daily expenses. The next big move would be to look for extra income. It is important that you talk about these with your spouse and children so that they will be wholly cooperative and disciplined enough to limit expenses to Needs.
The savings suggestions might sound complicated but you really have to sincerely give up until the credit cards debts are fully paid. You will be in bigger trouble if you don’t move very swiftly. Remember, these are just the bitter medicines and if properly done, is really only temporary until you get all your plans together.
The only good reason you can borrow at this point is to combine all your credit card debts into one loan. You must, however, declare this to the company that is willing to lend you. Most of all, you must make sure that you will be paying less interest rate to this new lender compared to the interest rate incurred in your current credit card debt. You must look at all the hidden costs like service charges etc. Those are not immediately noticeable.
It can be exciting to manage your credit card and the points that they offer that give out nice gifts. Just be sure you pay on time so that you do not get into unnecessary credit card debt.
I also suggest that you try this book that guides and instructs you how to save thousands of dollars and help you get out of credit card debt.
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4 Responses to “Dealing with Credit Card Debt”
I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog.
Tim Ramsey
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Tim Ramsey (Who am I?) on Jul 24, 2008
Hi Tim,
Thanks for the feeback. Much appreciated.
Sam
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moneyexpert (Who am I?) on Jul 24, 2008
Very interesting blog. I enjoy reading your posts.
Maria
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maria (Who am I?) on Jul 25, 2008
A relative of mine is up to her ears in credit card debt. She had just gotten it under control, but now she isn’t working, and it’s all she can do to keep her head above water. She’s young, 22, and has 4 credit cards! It’s a hard lesson for her to learn at such a young age.
Good post. Maybe it will get a few of us thinking before we pull out that plastic!
By
Greener Pastures (Who am I?) on Jul 25, 2008