If you're one of the millions of Americans whose credit card debt has spiraled out of control, there are ways to help yourself relieve that credit card debt and get back on solid financial footing. According to the results of an often quoted survey, the average American household carries about $9,000 in credit. Even if you're credit card debt is considerably lower than that, though, you may find that the amount of debt you're carrying is impacting your ability to get that mortgage that you want or the car loan you need to replace your old clunker. If you've resigned yourself to making payments on your credit cards for the rest of your life without ever seeing an appreciable drop in your balance, it's time to stop and reevaluate the role of credit cards in your life.
Credit cards should be a source of short term financing to help you space out payments for items that would take a large chunk out of one month's budget. Think of it as layaway with your purchase up front. When you decide to finance something on your credit card, you should have a forseeable end to paying for that item. Too many people view a credit card balance as an extension of their income - $5,000 more that they can spend every year, as long as they keep making enough of a payment to keep the balance below their credit limit.
Your goal should not be to keep your credit cards below limit. It should be to zero them out and keep them as close to $0 balances as possible. The less credit card debt you carry, the more attractive you are as a credit risk when it really counts - when you're looking for a mortgage or car loan, or, increasingly these days, when you're up for a promotion or new job or new apartment.
If you're ready to stop carrying the weight of credit card debt, here are four tried and true rules that will lower your credit card debt and get you back on solid financial footing. None of them are quick fixes. Unfortunately, there's no such thing - but by digging in and doing the work now, you can avoid the consequences later when it's really important for your debt to be gone.
- Put your credit cards away. Every new charge on your credit problem just adds to the problem.
- Budget. It's a word that most people hate, but it's a fact of life. You only have so much money each month to meet your financial obligations. Sit down and list all your monthly expenses and allot your income accordingly. Budget in 'mad money' but make it a fixed amount that you can live with each month.
- Choose one credit card. That's right. Pick the credit card that's got the best rate and terms and put that one in your wallet for any needed credit card purchases. Set a fixed amount in your budget that you can afford to spend for fun - whether that's computer upgrades or dinners out with friends - and stick to it. Don't charge any more than that amount on your credit card in any one month, and pay it off in full and on time the following month. You'll avoid interest charges and late fees that add to your bill each month and create a favorable credit history.
- Look into debt consolidation. If you're paying off on a high interest credit card - or several of them - look into ways to consolidate your debts. Whether your choose a credit card balance transfer, a debt consolidation loan or some other method to combine all your credit card payments into one, it will simplify your life and cut interet payments that keep debt high.
