One of the biggest obstacles to saving money in the United States is credit card debt. It is currently estimated that more than half of American families carry credit card debt, and most carry more than an eight thousand dollar balance. If each American family could save that eight thousand dollars instead of spending it on credit cards, we would, as a country, be in much better financial shape.
Becoming Debt Free In a Debt Based Society
The first step to working your way out of credit card debt is to sit down with your bills. Once you decide exactly how much you owe to your various credit card companies, find one of the many credit calculators on the internet. Most of these are free services provided by various sites that also have strategies to help you get rid of your credit card debt. Enter your information, and the calculator will show you how long it will truly take you to get rid of your debt if you make only the minimum monthly payment on a regular basis. The chances are quite good that you will be surprised with your results, as for many families, it will take twenty to thirty years of simply paying minimums to get out of debt under the burden of interest rates from eighteen to twenty percent.
Once you understand what your credit cards will cost you in the long run, it is important to sit down and make a plan to get rid of your debt. Many sites offer downloadable workbooks and worksheets to help you make a list of your debts on paper and a plan to deal with them, but those products aren't completely necessary. Start by writing all of your debts on a piece of paper. Record everything that you owe, who the creditor is, and what the interest rate is on the debt. From there, decide which debts are good debts and which debts are bad debts. Any loans that charge double digits in interest rates each year are bad debts. Good debts are items that allow you tax deductible interest and investments that will grow over the long run - like mortgage debts or student loan debts.
From there, it's time to figure out how to pay off your debt. There are several key steps in getting rid of debt. First, stop using the credit cards. You cannot make any headway into paying off your debt if you continue to use the very things that got you into trouble in the first place. Don't close the accounts, as that can affect your credit report, just stop using the cards. Next, be sure to pay more than the minimum monthly payment on each of your debts every single month. Try to double your minimum monthly payment every month, and things will seem a bit lighter as you find your way out of the debt sinkhole. Another step is to use a method called snowballing. This strategy starts by moving all debt to a low interest rate loan. This means that in the long run, you will be paying less interest, helping you to get rid of payments faster. If you don't have or qualify for a low interest rate card, try funneling as much of your resources as possible into the debt with the highest interest rate. Once it is paid off, move on to the next debt. As the overall level of your debt decreases, you will have more capital to continue to pay off your bills. You should also consider trying to lower your rates by renegotiating terms with your creditors. If you have had a good relationship with a card company, the chances are quite good that they will offer you a lower interest rate on your cards. Ask them for something like eleven or twelve percent, and you will be on your way to paying off your debt much quicker.
I've paid off my debt. Now what?
Once you finally manage to pay off the mountain of debt, you have to take control of your financial life and ensure that it doesn't happen to you again. Start this process by deciding how many credit cards you truly need to carry. If you have something like nine or ten credit cards, it may be easier if you decide to carry only one or two cards, as it will help you to get a better handle on your overall finances. Try to get rid of the tempting credit card offers that hit your mail box and your inbox on a daily basis. A bit of internet research will reveal lists you can sign up for to opt out of mailings for credit cards. A monthly budget may also help keep you from any serious debt problems in the future. Many computer programs can help you plan your expenses for each month, helping to keep you away from the temptation of the credit cards. If that temptation proves too strong, cancel the accounts. In most cases, it's better to be safe than sorry as far as credit card debt is concerned.
Alternatively, as is often advised, you many want to start using debit cards more often. A debit card offers most of the benefits that a credit card does but it is linked directly to your bank account which makes using a debit card similar to spending cash. A number of debit card programs now have rewards points too which make them more attractive. However, the one big drawback is that they can't offer you the monthly 'float' that credit cards do (i.e. the ability to borrow money interest free for a month or so, basically until your next credit card statement is due).