Ways to eliminate credit card debt

Thursday, April 16, 2009

Category: Personal Finance Tips

Credit cards are an undeniable part of most people's lives. Used correctly, they can be extremely useful whether it be to guarantee purchases to or to indulge in something special on rare occasions.

An unfortunate fact, but many of us see credit cards as our only option for making it through the month. Not only this, but many people are struggling to pay off their credit card debt. The best way to be financially independent is to rise above the challenge and eliminate credit card debt. But where do you start?

1. Stop spending on your credit card: The first step is obvious - stop spending on your credit card. Immediately. If you continue spending in the fashion that you have you are digging yourself further into debt. Eliminate the use of credit cards, and this will lead to eliminating credit card debt.
2. Set a budget: Almost all money experts will tell you that in order to make your money last longer, you need to set a monthly budget. Or a weekly one for that matter. Many of us do the unthinkable - we spend more money than we make. And this can lead us into a pit of financial depression. Budgeting not only helps you spend money more wisely, it also helps highlight how much unnecessary spending you have been doing. Mortgage, rent, utilities and food usually take up the bulk of your salary, but remember to budget for unexpected occurrences that may arise.
3. Use cash rather than credit: Another pretty obvious step. Think for a moment about why casinos use chips instead of money. It is because people don't place as much value on non-monetary items; therefore they will be willing to bet more freely. The same can be said for credit cards. Using a credit card is the easy way out, for now. Next time you want to indulge in an impulse purchase, use cash instead of your card. Not only will this eliminate future credit card debt, you will also think twice about impulse buying.
4. Get a better rate on your credit card: Depending on your credit rating, you could be getting a much lower rate than you are currently. Or better still, do your research and look to balance transfer. BUT only balance transfer if there is absolutely no risk that you will start spending on the balance transfer card. Many of these offer a 0% rate for 9 or 12 months. However, if you spend on the card, the balance transfer debt is often front loaded i.e. you pay the transfer money first and subsequently don’t pay off the new spend until the very end.
5. Pay on time, every time: Being sloppy and not paying your credit card on time will not only incur extra charges each time, but if you are on a special 0% rate, late payments could jeopardise it. Check your terms and conditions but 9 out of 10 times, if you pay late the 0% comes off. Even set up a standing order each month to ensure the payment gets there on time.
6. Do not withdraw cash from your credit card – ever: Withdrawing cash on your credit card will make your problems ten times worse. More often than not, any cash withdrawals on a credit card are charged at a much higher rate than your typical. And if you’re typical is around 18% you can be sure that the interest rate on the cash withdrawals will be nudging 28%. 
7. Always pay more than the minimum: If you only ever pay the minimum on your credit card, you will never clear your debt. Paying the minimum often barely covers the interest charged so in real terms you’re paying off a tiny amount from the actual purchase.
8. Once to have some extra cash, use it to clear your credit card debt: To eliminate credit card debt once and for all, use any extra income to the debt with the highest interest rate. This, combined with sticking to your budget, using cash instead of credit and living within your means will soon have you financially set, without any credit card debt to worry about.
9. Think about a debt consolidation loan: Debt consolidation loans can be extremely useful, especially if you have several credit cards or payments to make each month. Often a debt consolidation loan will make your monthly outgoings cheaper and more manageable into just one payment.
10. If all else fails… get the scissors out: If all else fails, take a pair of scissors from the drawer and cut the card up! Be strong. Don’t freeze it in an ice block or lock it in a drawer – just cut the thing up and get rid of it for good. This makes any temptation to spend impossible and because you aren’t able to spend on it, it should give you the motivation to clear your debts as quickly as possible. After all, who wants to be paying through the nose for a service which effectively they are not using? And that’s one of the best mantras to kick start your new financial freedom.