The credit card has become an essential item in today’s world. Garbage you say? Pay cash for everything and you won’t get into trouble. Well that thinking is obsolete. How do you expect to pay cash for items you want to purchase over the Internet? How do you expect to pay cash for hotel bookings, air fares, concerts and so on? You simply must have a credit card.
The trouble with a credit card is that you tend to lose the discipline of controlled spending. When you use a card it does not seem like you are spending cash. After all, it is only a piece of plastic and the card has an added bonus of payment sometime in the future. What person does not like putting off something today that can be dealt with tomorrow? Unfortunately, the saying that tomorrow never comes does not apply to a credit card debt. Judgement day arrives when the credit card company wants payment and you have to account for your sins of over spending.
Credit card companies do not particularly like people who pay the entire credit card bill in full each month. Why should they? They want to charge you interest. If you can’t pay in full, then the credit card company provides you with a minimum payment amount. Once you only make the minimum payment you fall victim to the interest trap.
The first step in controlling your credit card debt is to examine how interest is charged. You may find that if you only make the minimum payment, then interest is charged on the unpaid credit items from the very day they were purchased. While mortgage interest rates are relatively low, interest rates on credit cards are relatively high. So high in fact that many people wonder how the credit card companies can justify such seemingly exorbitant rates. So the first rule is to pay as much as you can off the credit card if you can’t pay in full.
The second step in controlling your credit card is to stay within your limit. Ideally you would set your limit to what you can afford to pay each month. That is to say that if your budget allows to to spend five hundred dollars per month then you should set your credit card limit at five hundred dollars. In theory, that would be fine but in practice it could well be unworkable. There may be times when unexpected expenses arise such as motor vehicle repairs where a limit of one thousand five hundred dollars would be acceptable. Remember, it does not cost you anything to have a workable limit to cover emergencies. So the second rule is to set a limit at a reasonable level and use it up to the limit only in an emergency. Credit card companies will try to get you to increase your limit often well above your capacity to repay each month. That only encourages to spend more than you can afford so ignore their offers.
The third step in controlling your credit card debt is to discipline yourself to resist impulse spending. Television shopping shows employ sales people who practically scream at you to purchase their products. Phone in now for this special offer but wait, there’s more. For the next fifty people we’ll double the warranty. Sounds familiar? Ask yourself. Do you really need the product? Nine times out of ten you don’t. Supermarkets are designed to encourage you to spend. Quite often the most expensive item is at eye level with the cheapest item buried somewhere on the bottom shelf. Two for the price of one often has you buying the items that have a use by date near to the current date. Buy two and get one free encourages you to purchase items that you would normally ignore. Clothing stores frequently advertise sales that aren’t really sales at all. In short, you, the consumer, armed with your credit card are being physiologically bombarded daily with tricks to entice you into spending on items that you don’t necessarily need but find them irresistible to ignore. So the third rule is to spend on items that you only need to purchase.
The fourth step is to rid yourself of several credit cards and keep only one for use. Choose the one that offers the lowest interest. Several credit cards only serve to “rob Peter to pay Paul.” In other words, you use one card to pay the debt of another card. You are only fooling yourself and your debt will soon become unmanageable. Far from controlling your credit card debt, you are on the road to bankruptcy. So the forth rule is to restrict yourself to one credit card. If you do lose your card, then only one phone call is needed to prevent fraud.
The fifth step is to realize that if you have overspent and can’t make even the minimum payment, the credit card company will wipe your credit card history if you ignore letters demanding payment. If you have several cards, take the opportunity to approach the one company who will accept a debt consolidation and set up a repayment plan that you can afford. So the fifth rule is to take responsibility for your debt problems.
Human nature being what it is, a person with a credit card will find it extremely difficult to resist the urge to instantaneously gratify himself or herself with spending on plastic items later which in the light of the day prove to be sheer extravagance. The penalty of course is that fact that this reckless spending must be paid for, quite often over several months charged at extremely high interest rates. Every trick in the book will be employed by companies to induce consumers to spend, not necessarily if they can afford it later one, but now, this very instant.
Every person should know their own expectations and more importantly their limitations. The key to handling credit card debt is to use credit wisely and not frivolously. Above all, there should be a realization that without discipline, expenditure far and above income is a recipe for disaster.