By: Rabbi Max Anteby
Credit cards can be a very useful and convenient tool, when used correctly. The trouble is that many people misuse their credit cards by charging more than they can afford each month. Credit card companies actually rely on people misusing their cards; the interest charged on outstanding balances represents the primary way in which credit card companies generate revenue.
There are many advantages to using credit cards. You never run of out money. You can use your credit card to pay for purchases by telephone or online, and they can be used anywhere in the world. Many also offer the possibility of earning rewards, in the form of airline miles, cash-back offers or other perks.
So much for the advantages of using credit cards. Now let’s address the drawbacks. Drawback number one is that they make it deceptively easy to spend money, whether you have the money or you don’t. The act of swiping a credit card is not nearly as painful as taking actual money out of your wallet, and for some, it’s actually painfully enjoyable.
The other major drawback of credit cards is that they are a form of debt, and credit card debt is one of the worst forms of debt, for two reasons: it usually carries very high interest rates, and there is no repayment deadline. As long as you keep making minimum payments, credit card companies are quite happy to keep tacking interest onto your balance and let your debt swell to ever-greater proportions.
In addition, credit card companies are legally allowed to monitor your credit report, and should you make a late payment on a loan, a different credit card, or a utility bill,your interest rates can be increased dramatically, even if you have never missed a payment on that particular card!
Because credit card debt is so dangerous, our advice is that the only people who should use credit cards are those who (a) can rein in their spending despite the convenience of plastic, and (b) consistently pay their balance in full every month.
But what if you have already fallen into credit card debt? Here are some strategies to help you reduce and eventually eliminate your debt.
Stop Using Your Credit Cards - If you’re already behind on your monthly payments, don’t aggravate the situation by accumulating more credit card debt. Although this may seem obvious, it is actually the opposite of how people generally work. People who owe money generally have the tendency to lose a major psychological deterrent to borrowing, and they let their debt slowly inflate. (“What’s the difference if I owe $600 or $900?” “If I already owe $60,000, another $5,000 won’t make any difference.”) Cut your losses now, and don’t allow yourself to charge even one additional item.
Take out a Loan to Pay Off your Credit Card Debt - Almost any type of loan is preferable to credit card debt because interest rates are generally much lower and there is a specific repayment timeframe. Work out repayment terms that reflect your ability to repay, which will help you discipline yourself to put aside a fixed sum every month for debt repayment.
Do a Balance Transfer to Another Card - While you might pay a fee, transferring your outstanding balanceto a card with a lower interest rate will decrease the amount you carry from month to month.
Find a Card with a Low Interest Rate - Some credit cards offer relatively low interest rates. Shopping around for a better rate than the one you currently have can save you hundreds or even thousands of dollars a month. Look out, however, for introductory offers that end after several months or exclusions that limit the low rate to new purchases.
Never, Ever Miss a Minimum Payment - Missing minimum payments is a big no-no, and can severely damage your credit rating. Since credit card companies are among those monitoring and contributing to customers’ credit reports, alate or missed payment on one charge account could cause your rates and fees to increase on a completely separate account – even your car insurance premiums.
Pay off Credit Card Balances from Smallest to Largest - The smallest debts are the easiest to pay off, and clearing them out of the way helps you make the fastest progress towards getting your finances in order.
Make Micro-payments - In addition to the minimum payments, send in whatever small amounts you can to gradually pay off your balance.
Get Professional Debt Counseling Assistance –Climbing out of credit card debt can be a very tough task to tackle alone. We recommend you contact us at firstname.lastname@example.org.