We all do it. We whip out that credit card to pay for everything without even thinking about it. Groceries, clothing, subways, buses, gas, car repairs, dining out, snacking, lunch, books, household items, home office supplies, school supplies, house repairs, etc…
Before we know it, our credit card balances are way more than we can afford to pay in full each month. How do we get back in control?
Step 1. Make a vow to yourself to plan out purchases ahead of time and get out of debt.
Step 2. Determine how much money you can afford to pay each month for the purchases you normally put on your credit card. Which purchases are more important? Which purchases can you do without? Include payments towards paying down your existing credit card balance in your calculations.
Step 3. Determine if your current income is enough to get out of debt. If it is not, consider taking a second part-time job. Some options are: baby sitting, tutoring, dog walking, pet care, blogging, bussing/waitering/waitressing, retail sales, etc.
Step 4. If you are carrying a balance on your current credit card, apply for a new credit card for new purchases. Why? Because your current credit card is charging you finance charges on your outstanding balance. If you keep putting new charges on your card, you will be charged finance charges on your new and old purchases until you pay off the credit card in full for several consecutive months. Depending on how large your existing balance is, this could take awhile. If you put all your new purchases on a new credit card and pay it off in full every month, you will not be paying finance charges on your new purchases. If your credit is not good and you can not qualify for a new credit card, switch to cash or debit for all new purchases and limit new purchases as much as possible so you can concentrate on paying down your credit card balance.
Step 5. Really concentrate on paying down your current credit card debt. Always pay more than the minimum payment. If the minimum payment due is $172, pay down $200 or more. If you get a bonus or a birthday or holiday check, or income from a second job, use it to pay down your credit card balance. Determine how many months it will take to pay down your credit card if you pay $200, $300, $400, etc a month. Based on your calculations in Step 2, make the maximum payment you can each month. You will be surprised how fast the debt goes down.
Step 6. If your credit card balance is really high and you are having trouble making even the minimum payments, this is a sign that you are experiencing economic hardship. Call your credit card company and tell them that you are experiencing financial hardship and ask if they can help. Explain to them that your income is down and/or your expenses are up, etc. Some credit card companies will ask for proof of your financial hardship. They may offer you a hardship payment plan at a reduced interest rate for a certain period of time. Work them down as low as possible, tell them you can only afford $50 or $100 a month, over and over. They will keep going lower until you get a minimum monthly payment and interest rate that will work for you. Try to get the hardship plan to be in effect for a year or more. Go back to Step 5. If the credit card company will not work with you, check out the Part 2 of this blog post for extreme measures.
The feeling of being in debt is a stressful one, especially if you are snowed under. Making a plan to dig yourself out will help alleviate the stress in the short term and solve the problem in the long term.
Post authored by Elizabeth Metura