Get out of Credit Card Debt

by on January 25, 2011

Credit card tends to make you buy more as it is convenient to use. However, many a time’s people spend more and end up having a credit card debt. People often forget that credit card is just a tool to help you avoid carry large amount of cash in your pockets and whatever purchase you do with your credit card, you will have to pay it in the end. Escaping your credit card bill by paying the minimum amount every month is not a safe play by any means.

In order to successfully come out of debt you need to follow five steps which are:

Evaluate Your Debt

The first step is to find out how much debt are you in and what are the measures that you will take to reduce the debt. You can also frame a debt load worksheet which will enable you to make a correct assessment of your debt and you will know how much you owe to your creditors.

Also, take into account the interest rate related to each debt and the minimum monthly installment that you have to pay. Mark the debts which have an interest rate of 15% as they need to be handled first.

The next step is to dial the customer care and ask whether the bank will reduce the interest rate. Most banks lower the interest rates because they want to retain you.

Make a Budget Plan

Review your finances and chart out your budget. Henceforth, only cash is the mantra for you and you need to stop relying on credit cards. In order to make a more realistic budget you need to be honest about your spending habits. Also, don’t be afraid of making small changes from time to time.

You have to keep in mind that planning a good budget does not mean that you cut down completely on your fun and you need to live in deprivation.

Tips to Create Your Budget Wisely

However, being Budget-wise is not a technique from rocket-science. Everyone can easily manage their budget by following these simple steps:

Calculate Your Expenditure:

The first step towards being budget-wise is to calculate how much you spend and where. Include all your weekend plans and those late night outs with friends.

Monthly bills and rents should also be taken into account.

Sum Up all your Savings:

Count the monthly salaries and incentives that you get. Meanwhile, also consider returns from your investments and the add-ons that you fetch from other sources.

It will help you to spend accordingly.

Cut the Un-necessary Expenses:

You definitely don’t need that extra talk-time to talk to those who never call you. Give others some time, so that they also can miss you sometimes.

Discontinue with the not frequently read magazines and journals.

Re-assess Your Budget:

After subtracting your expenditure from savings, in case the results come out as per your expectations, then kudos to you.

If not, work on it again. There is nothing wrong if you face failures at first, at least you are trying to do something good for yourself.

Award Yourself:

After that brainstorming session, you definitely deserve a treat. But beware, not with the financial rewards, or else you will end up causing the same harm for which you have worked so hard.

A quite evening with soft music in the background can actually do wonders or you can also treat yourself with a refreshing book.

Additional tricks:

  • Get that little black dress in the sale season. Believe me; you will look more radiant, as the happiness of saving those extra bucks will reflect on your face.
  • Get a walk instead of boarding a transport every time. It is good for your health too.
  • Instead of splurging onto something quite expensive, reward yourself with minor things that make you happy.
  • Instead of eating out regularly, make something on your own. Cooking works as a therapy and is a major stress buster.

By making these cost-effective measures as a part of your thinking, you can easily, manage the balance-sheet of your life. As earning money is like digging with a needle while, spending it is like water soaking into sand.

So, go and roll up your sleeves to save your hard earned money. After all, a penny saved is a penny earned.

Break Down Your Spending

You can lower your expenses by trying to find out the areas of extra expenditure. Also, you can try cutting down on your phone bills, electricity bills and grocery bills. The amount that you save after making these cuts would be helpful in paying off your debts.

Tips to Cut Down spending Habits

Being extravagant is always a matter of loss. The habit has all the essentials to eat up your bank balance or credit some amount from friends. Most of the times, shopping germs urge you to buy items that soothe your eyes and have no significance elsewhere. It is not so easy to revolutionize the habit; therefore, we offer you some remedies that can surely limit your hand to spend generously. Grab a look on quick-fix therapy:

  • It is good practice to rest your credit cards at home at the time your mood swings for shopping.
  • Plan long-term goals such as vacation, new car or anything that can attract you for savings.
  • Assign tempting and useful gifts for yourself once you achieve targeted savings.
  • Make a clear distinction between need and desire. Need must be fulfilled and desire demands another couple of minutes to think how insignificant it is.
  • Shop with a list and spend only for the listed items.
  • Make budget for expenditure.
  • Slow down your shopping impulse and affection for useless stuff.
  • Make a purchase companion who can control extravagant germs.
  • Try to avoid big traps such as shopping carts. Shopping baskets will keep you occupied and you will be forced to restrict your selections.
  • Possess courage to hand over your shopping list to someone else. In return, you can board yourself at home.
  • Analyze your shopping list for needed items before you make any purchase.

Mania for shopping will leave you with the challenge of storing all new purchases. A planned shopping is a simple trick to keep your finance in better order. Online shopping is another way to cope with dilemma where the number of choices is limited. It will surely save you to get caught up in the excitement of shopping and make purchases that you don’t really need when friends are around to tell you how great the item is.

Slow and steady practice will quickly inculcate in you the habit of saving. And it will also allow you to accommodate big luxuries out of your own savings made from unwanted selection.

Save Money

You should have enough savings to deal with unforeseen situations and therefore start saving for emergencies. Estimate the amount that you would require for your medical bills, car repairs and other such situations. Make sure that every month you save a certain amount which can later be used to pay your debts.

Getting Out of Debt

Not everybody would be making the use of a credit card. But those doing so would definitely be carrying a balance to be repaid. And as the interest rate on a credit card balance is usually between 10-30% APR, the credit card practice is not something profitable, though it does ensure you the convenience of shopping or doing some other transactions at the swipe of a card — without having to carry cash along.

The credit card balance may augur long-term debt for you, especially if the repayment is being done by you in small installments. So much so that, the credit card balance may last even for a decade in case you opt for repaying via minimum payment mode. And as a result, you would be left with no other option but to shell out thousands of dollars in finance charges, thus making it difficult for you to get out of the debt easily. These extra charges could otherwise have been your saving for a rainy day.

If you are desperately trying to get out of debt crisis caused due to a credit card and not succeeding in your efforts, here are a few basic steps that need to be followed to ensure that the balance gets zero as soon as possible.

  1. At the very first place, prepare a list of all your credit cards. Among other things, you’ll want to include the outstanding balance, interest rate, and minimum payment, information regarding which may be easily found on your last monthly statement.
  2. Arrange the credit cards in a manner so that the one with maximum interest rate tops the tally while the one with minimum interest rate is at the bottom.
  3. Now, sum up the minimum payments. This minimum payment is the amount that you would have definitely to pay but remember that if you continue to repay in this manner, your debt crisis may last very long. Therefore, you will have to make your installments as much as your budget allows.
  4. The next step would be paying maximum for the credit card that is charging you the maximum interest. And for the rest of the cards, you can continue to pay the minimum charges. This way you would get rid of the card that is charging you the maximum earlier than other cards.
  5. This sequence has to be followed till the time the maximum-charging card has been paid off. Subsequently, the process has to be applied for the rest of the cards – again choosing the maximum interest rate card and repaying it first.

Utilize the money that you have saved with your new budget to pay off your debts. You can also sell away the items that lie waste in your house. For example you can sell off your old furniture, clothes, your kid’s toys and other such stuff that is of no use to you. You can auction these items at sites like the eBay and also in the classified section of your newspaper.

Try doing the tasks for which you utilize the services of some other person. You can cut the grass in your garden on your own and then pay yourself for the work. This money can be used for your savings.

Also, be patient as it will take some time before you pay off your entire debt. Carefully following the above plan would make you tide over the situation more effectively.

{ 9 comments… read them below or add one }

Amy January 25, 2011 at 6:18 am

Very informative article, thank you sharing great tips.

Reply

Jon January 25, 2011 at 6:29 am

I have suffered from credit card debt, month after month the little credit build up into huge debt and the biggest mistake I made that I was only paying the minimum payments.
Later the credit card company lowered my credit limit to $5000 from $10,000.
It totally turned my budget upside down, by the time I could pay the remaining amount, I had already been fined massively.

People, use your credit card wisely and “never spend more than u earn”.

Reply

sheryl January 28, 2011 at 11:43 am

I remember when I was down under $4000 credit card debt 5 years back, I had no1 then to guide me out of my debt.

but I’ll remember these tips mentioned in the article for all my life. It gives me shivers when I think of those days….

Reply

Trisha January 28, 2011 at 12:04 pm

From my personal experience, I’ve learned one thing that you should always have an emergency savings to help you out in any financial situation.

Reply

iretire editor January 28, 2011 at 12:23 pm

@ Trisha, You made a great point there. Emergency funds are life savers in dire straits.

Reply

Josh February 6, 2011 at 3:32 pm

Thank you for sharing that valuable information. Credit card debt is a huge issue and most of the youngsters fall into the trap when they get a credit card.

Reply

Victoria Secret Coupon February 7, 2011 at 11:10 am

Hi there : )
Shopping on the internet or in-store? which often do you realy go for? just wondering lol.. i favor in-store since i hate waiting for it to come!
Ty
Chloe

Reply

Victoria February 9, 2011 at 4:18 pm

Great article, thank you for sharing valuable information.
Credit card debt is a huge problem indeed.

Reply

Rachel February 24, 2011 at 1:39 pm

Really good tips for getting out of the muck of debt. One of our bloggers wrote a piece back in October on cleaning up your debt before buying a house, which also may be helpful for your writers (http://real-estate.equifax.com/2010/11/getting-rid-of-debt-before-buying-home.html)
Hope this helps!
Rachel

Reply

Cancel reply

Leave a Comment

CommentLuv badge

This blog uses premium CommentLuv which allows you to put your keywords with your name if you have had 3 approved comments. Use your real name and then @ your keywords (maximum of 3)

Previous post:

Next post: