Tips On Dealing With Credit Debt
Are you worried about finances this holiday season? Do you or are you financing your holiday plans and gift shopping with credit cards? If the answer is positive to either question, you are not alone. Over 20 million shoppers in the US either supplement or fully fund their winter holidays with credit purchases. It comes as no surprise that November, December and January are the months of the highest credit card use. Unfortunately, how one will pay for that credit indulgence becomes a worry for months beyond.
Average Credit Card Debt
From groceries to fuel to online purchases, the average credit card holder has over $22,000 in credit card debt. That doesn’t account for mortgages, education loans or auto payments. As shoppers utilize credit cards for holiday-related purchases, intellectually, most know that the bill must eventually be paid, but they are nonetheless shocked by how much they actually spent with plastic in place of cash.
When those post-holiday bills roll in, how will you pay them without penalty and still maintain a good credit history?
The best defense against high, unexpected credit card bills is pre-planning your spending. Set purchase amount limits and stick to them. Don’t indulge in extras when unnecessary. Even a $10 difference for an extended warranty on electronics can make a large difference in total accrued interest rates on credit cards, especially when most are totally unnecessary.
Keeping yourself or your family housed and fed should be priority on your budget list. Don’t neglect a mortgage payment or a utility bill in deference to optional spending. Make sure you pay at least the minimum due on those bills and pay them on time. Save the $5.00 you’d normally spend on designer coffee en route to work, saving the money for interest-accruing loans and penalty-inducing bills that have a much higher slot on your priority list.
After your housing costs, food costs and utility bills, you might next list insurance premiums. Most mortgage loans require obtaining and maintaining home owner’s insurance, so include that on the same line as your mortgage. If your mortgage holder invokes its contractual right to insure your home, the cost is still yours, and that price is usually higher than any independent insurance you might find. However, don’t forego auto insurance for each vehicle registered under your name or medical insurance. Review costs, compare plans and purchase more affordable plans if possible, but don’t let the policies lapse.
Bite the convenience bullet and end costs for cable and the gym membership. Instead, dedicate that money to priority bills or deposit it into interest-earning accounts. Even pet foods and mobile phone plans that run high can be trimmed to a more affordable range for additional savings.
Reaching Your Credit Bill Goal
Once you have trimmed the fat out of your budget, it’s time to tackle your credit card debt. Most experts advise that you pay off the lower balances first, completely eradicating that single debt from your list. Apply at least half of that minimum payment to the next bill on the upward scale. If you use only 50 percent of the prior bill’s installment toward the next card’s balance, invest that other 50 percent in that interest-bearing savings, CD or other account.
While it can be detrimental to your credit score to cancel a credit card once it’s paid in full, consider eliminating those cards that charge high annual fees or that automatically escalate credit limits and interest rates. Cards with benefits like flying miles that go unused might seem like a good deal, but you are actually paying for the free miles within your balance payments and fees.
Consider paying larger amounts with your tax refunds. Bulk payments that include large portions toward the principle on credit cards can vastly reduce not only the interest you pay but the monthly installments themselves.
Don’t forget your loans either. While credit card debt may be high, every loan that remains outstanding also costs you extra money too. Once you have a good handle on your credit card debt once again, apply extra toward your mortgage loan, car loans and school loans to reduce the interest rates you’re paying on those as well.
Written by Jaye Ryan, a freelance author who loves writing about budget tips and sound financial management.
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