How Do I Start Paying My Credit Card Debt?
Looking at credit card statements can be overwhelming, but breaking the process of paying off credit cards into steps can make the process less daunting. The first step is to stop charging on the credit cards, and the second step is to make a budget. This budget will tell you the amount of money that you can put toward debt payoff each month. The third step is to pay as much as you can each month toward your debt. Credit consolidation can help simplify the payoff process.
It is easy to charge something you want on a credit card and plan to pay it off later, but unnecessary charges add up, especially when you are paying high interest rates on your credit cards. Getting into the cycle of credit card debt is easy, but most people can stop charging simply by cooking meals at home and staying away from stores except for grocery shopping. Some people cut up their credit cards so that they cannot use them, while other freeze the cards in a brick of ice so that they have to go home and think about a purchase they want to make while the ice is melting.
Make a Budget
It can be scary to sit down with all of your bills in front of you and write them down, but most people find that making a budget helps them feel in control of their finances. When you are making a budget, it is important to write down monthly expenses that don’t get paid all at once, such as groceries, entertainment and gas. It is also a good idea to save money for expenses that happen spontaneously, such a car repairs. Try to guess how much money you spend on these expenses per month and save that amount so that you are prepared when something happens.
The amount of money you have left over after your bills and expenses are accounted for can be used to pay off debt. You may need to cut some expenses such as a landline, gym membership and eating out until you have paid off your credit cards. Most people pay the minimum payments on all of their credit cards each month until they have $1,000 in their savings account. This money is an emergency fund that can be used to pay for unexpected expenses that have to be paid, such as repairs to a furnace or washing machine. It may help to divide up your expenses according to the amount of times you are paid each month so you know which bills you need to pay out of each paycheck.
If you are overwhelmed by the amount of credit cards you have and have trouble keeping track of your due dates, it is a good idea to consolidate your credit cards into a single monthly payment. The consolidation company may be able to lower the overall interest rate you are paying so that most of the money you send to them each month goes toward paying off the principle amount instead of only paying the interest.
It is important to make your monthly payment to the consolidation company on time. Send the payment several days in advance to make sure it arrives at its destination before the day it is due. If you will be unable to make a payment on time for any reason, you should call the consolidation company before your due date to find out what your options are. Most companies are happy to work with you as long as you communicate with them about your account.
When Debt Reduction Costs Too Much
Debt reduction is a tremendous relief to Americans today. Getting out of debt will help anyone’s financial situation, but the process of debt reduction may sometimes actually harm a consumer more than it will help them, depending on their individual situation. There are several different ways in which debt reduction may wind up costing consumers more than it is worth.
When the Cost of Obtaining Future Credit Is Too High
If you have good credit now, then chances are you are enjoying low interest rates and a low cost for obtaining new credit. When someone enrolls into a debt relief program, however, chances are the impact to your credit will be severe enough where obtaining new credit is either difficult or so expensive it is not worth it. Obviously many people considering debt reduction programs are doing so because their debt has become unmanageable. Chances are if you’re missing payments, are at your credit limits, and have high balances that your credit is suffering already. If this is the case, then you should consider your debt relief options – credit counseling, debt settlement, and bankruptcy – and determine which one is the best fit for your financial needs.
When You Cannot Afford It
When there is question whether or not a debt reduction program will be affordable, it is always best to avoid it and consult with a bankruptcy attorney immediately. Affordability is a difficult thing to determine, especially for a third-party who does not know the full details of your financial picture, so the onus is on you to conservatively gauge your budget and decide if a debt relief program is cost-prohibitive for you. Even if you are not charged up front fees for enrolling, you will waste precious time, add unneeded stress to your life, and lose money for accounts you resolved during the process.