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If you are worried about the debt on your credit card, then here is some good news for you. There are ways (not one but many) to square off this debt and prevent it from happening again in future. In this chapter we will outline steps that need to be followed by which the credit card debt problem can be eliminated.

Step 1 – Prepare a consolidated sheet of all your credit cards. The document will list all your active cards and entries will be made under the following column headers -

• Credit Card Name - In case you have more than one card from the same supplier, you can append the name with last four digits of the credit card. Do not put the complete credit card number on the document because of security reasons.
• Balance – Update the sheet monthly to reflect latest balances.
• Payment Due Date – This also needs to be updated every month to ensure your document is up to date.
• APR – This is often present on the credit card statement, if not you can get this information from your credit card provider.
• Reward Points Earned
• Reward Points Redeemed
• Redemption Offers Available
• Remarks (if any)

Step 2 – Fill the data in the above sheet and ensure it is complete and correct.

Step 3 – Locate the culprit card from the above sheet. This will be the card having highest APR and balance.

Step 4 – Confirm if there are any redemption offers available on the above credit card that could help in paying off partial or complete debt using reward points. If there are offers available on this or another card, prepare a comparison chart of all such offers to locate the best one.

Step 5 – Making use of the redemption offers selected above start making payments on the credit card having the highest debt. Your first priority should be to bring down the balance on this card to as low as possible (if not zero).

Step 6 – Make strict guidelines for yourself on how you will be spending on the credit card hereafter.

Step 7 – Look for alternate sources of income. This extra money can be used to make payments on the credit card, thereby further reducing the debt.

Although the above steps look tedious but once you start practicing them, they take the form of a habit – a habit which will soon eliminate your existing debt and at the same time train you to use your card more wisely in future.

To Your Success!
Mark

Credit Repair Tips

Debt Consolidation

How we Visualize Cash vs. Credit Cards

Let us have a more detailed look at the primary reason for credit card debt i.e. ignorance amongst people about how credit cards actually work. People who do not understand how credit cards work often end up having huge credit card debts. Although some of them learn by experience and start using their credit cards more wisely, but most of them fall easy prey to this demon.

A person who has a huge credit card debt often is the person who considers credit card as a golden goose. Such a person treats the card as a source of free money that is never to be paid back. With such a feeling, little caution is paid towards how money is being spent. Wise planning and sound decisions, which would otherwise have been taken, are ignored. If the monthly expenditure on the credit card doesn’t reach the credit limit, it is considered as a failure.
A credit limit is often taken as a threshold that needs to be surpassed.
The end result of such imprudent financial planning is that people are unable to pay their credit card bills, which eventually results in interest on the amount they owe. If spending habits are not improved, the interest payments become a regular feature in the credit card bills. There can even be a situation, when the person doesn’t make any purchase on the credit card during the month, but still end up paying hefty sum on their monthly credit card bill mainly because of the interest component being carried forward from the previous months.

People are then attracted towards other credit cards with hope that they will start a new clean credit card account. With the power of this new credit card, they soon restore back to their old spending habits. Consequently, interest starts building up on this new credit card also. But the situation is now even worse – they have more than one credit card with debt. When the debt becomes substantial; credit card debt collection agencies auction off their goods to recover debt. Bankruptcy becomes the final destination.

To make best use of credit card, a person should understand how credit card works. Expenses should be made on the card after giving a serious thought on how they will be repaid once the monthly statement arrives. Although at times there are emergencies when the only viable option is to spend money through the credit card, but as far as possible, such occasions should remain rare or else sooner or later, you will fall a prey to the credit card debt.

To Your Success!
Mark

Credit Repair Tips

Debt Consolidation

In the previous chapter we discussed what credit cards are and what various terms related to credit card mean. In this chapter we will elaborate more on the reasons that cause credit card debt.

Before we continue let us ponder why some people tend to make excessive use of credit cards? Why do some people favor to spend by credit card even when they have cash in hand or sufficient balance in their bank accounts? Why do some people prefer to make only partial payments on their monthly credit card statements? Most of the reasons for the above questions can be attributed to two factors – having the feeling of ‘money is leaving you’ when you pay by cash and ignorance about facts related to credit card.

Foremost reason for credit card debt is the way people think about credit card and how they treat it different from cash. People often think that when they make payments by cash, they are spending from their own pocket, but when they make the same payment through credit card, someone else is making the payment. This feeling is often short-lived and once the credit card statement arrives, they realize that it is they who eventually need to pay for the expenses made on their credit card. Until reality sinks in, some people get into the habit of excessive use of credit card, which in due course makes them land in the credit card debt.

Another major reason for this is the general ignorance on credit card facts. Most of the credit card owners do not know about the existing APRs on their cards. When going for a new credit card, they watch out for credit card brand and points attached with each cent spend on the card and do not look out for the interest rates associated with the cards. Although it is mandatory for credit card providers to publish their rates, yet it not advertised that strongly and is not made known to the public like it should be. This causes people to possess cards which carry high interest rates, which in due course results in credit card debt.

Finally, prevailing market rates play an important role in determining the interest rates on the credit cards. The outlook for coming months and existing bank lending rates drive the interest rates on credit cards. A gloomy economy causes the interest rates to rise which eventually hits the pockets of the credit card owners having debts on their cards.

The above are the major reasons for credit card debt. A person may have debt because of one or more reasons – some under his control and some beyond his control. So it always better to be vigilant, know your card and have basic knowledge of market parameters. Awareness will help you a long way in staying away from credit card debt.

To Your Success!
Mark

Credit Repair Tips

Debt Consolidation

The Vicious Circle of Credit Card Debt

Credit cards have revolutionized the way people manage their expenses. Although it started with the idea of giving people the power to buy things and make expenditures even when their bank balances couldn’t afford one, but recently things have changed. People now prefer to use this ‘Power of Plastic’ and live on credit even when they could manage otherwise. It is no longer a luxury but a necessity.

Statistics prove that most Americans hold more than one credit card. Having said so, it is also true that most credit card users don’t know about the interest rates on their cards. Although well-informed people tend to pay off total dues on their cards every month, but for the others who either make partial payments or pay off just the minimum amount owed, the dues keep on increasing steeply with every passing month. And when you have multiple cards, the situation becomes worse. To realize this problem better, let us first understand how credit cards work.

Credit cards are the cards on which you can lend money from financial institutions (also known as Credit Card Providers). Each credit card represents an account opened with one of such establishments. Every time you use your credit card, you actually borrow money from the credit card supplier, and so, you now owe that much amount to the particular supplier. This amount owed is called Credit Card Debt. Like all liabilities, this debt comes with an interest rate and a time period within which it needs to be settled (called the Grace Period). Every month, the credit card supplier provides you with a statement depicting the following:

·        Total Amount Owed: This is the total amount you now owe to your credit card provider. Besides including the expenses made during the month, it also includes balances due from last month, interest applied on those balances and applicable fees (if any).

·        Minimum Amount Due: This is the minimum amount you need to pay off within a required time in order to avoid any late fees on the payment.

·        Payment Due Date: This is the date by which you must pay at least the minimum amount due in order to avoid the late fees.

Interest is then applied on the amount you still owe after the payment due date has passed. Here is where most people fail to score. It is a known fact that the majority of people like to pay off just the minimum amount due on their cards, not knowing the fact that interest is applied on the difference between the total amount due and the payment made. So if the total amount due is not paid, interest will be applied on the amount that you still owe. This charge due to interest is then added to your account and is carried forward to the next month statement. Consequently, in the following month interest is applied on the actual expenses made by you (minus the payments you have already made on the credit card) and also on the interest accrued during the previous month. With each passing month the credit card debt keeps on getting larger and larger. As expected, for people having multiple credit cards, this becomes even a bigger issue.

The interest rate on credit cards is usually more than that on other types of credits (like personal loan from banks). The interest rate on a credit card is called APR (Annual Percentage Rate). APR calculates fees and interest under one column head and is calculated on a yearly basis. The law requires credit card lenders to disclose their APRs to all new applicants and also to the existing holders in their monthly statements.

Although at first glance, this seems like a big issue, but like all problems it also has a solution. With some wise decisions and smart money management tricks, this debt demon can be tamed. In the subsequent chapters we will learn how.

To Your Success!
Mark

Credit Repair Tips

Debt Consolidation