You have probably developed the habit of using your credit cards to buy the things you want now and paying for them later. You make only the required minimum payment. Usually by paying the minimum payment you are only paying the monthly finance charge or interest and maybe just a small amount of the balance.
At this rate you will be paying that 18% rate for a long time. A purchase of only $1000 may cost you $1500 when, after 5 years it's finally paid off. What is most amazing is that consumers will wait months for a sale, only to save 10-20% and then make their purchase on a credit card and pay more to the credit card company in interest than they saved.
The average credit card balance consumers carry has been increasing every year. Many consumers turn to home equity loans to "eliminate credit card debt" as the ads suggest. First, this doesn't eliminate the debt. In most cases it only consolidates it and offers a lower monthly payment that allows you to continue the habit of living off your credit cards and get even deeper in debt.
A credit card can lure you into living a lifestyle that is beyond your means. If you get into the habit of eating out a few times a week and you pay for those meals with your credit card, your card balance may increase quicker than you realize. Usually the additional expense has not been budgeted or planned. Some consumers will even end up spending more each month than they actually earn.
This habit may continue as long as your credit card balance is below its limit and you only make your required minimum monthly payment. Then as soon as you reach your credit limit, most credit card companies will increase your credit limit and give you room to get deeper into debt. It isn't unusual to see a persons credit card limit increased by $10,000 over a period of only a few months.
This is a vicious cycle that will continue until you are required to make a payment that is more than you can afford. Now, not only do you need to cut back and give up the lifestyle that you have become accustomed to, but you also have to increase your income or cut back on some things you've enjoyed before living the credit card lifestyle.
There must be a better answer to your debt problem?
How about some good old fashioned self discipline? It may not be in style anymore but without a doubt it is the best policy.
Bottom line:
- Pay off your balance every month. Don't buy something and expect a big bonus at the end of year to pay it off. You will most likely spend it on something else even if you do get it.
- Don't fall into the trap of living the credit card lifestyle. If you have disposable income each month, only spend what you have. Don't spend more and expect to make up for it by assuming you can catch up when your bill comes next month. It simply won't happen.
- If you have bad credit habits, rid yourself of credit cards, and only keep one for times when it is a necessity then pay off the balance every month.
- Create a plan to get yourself out of debt and stick to it. Here's a good habit to develop. Eliminate credit card debt! Put together a plan for credit card debt elimination.
- Take action today. Read our article eliminate debt.
This is not a position that you want to find yourself in. With a little advance planning you can be in control of your finances and when the unexpected happens, you will be in a better position to manage it.
You may reduce stress, avoid family problems and get a better nights sleep knowing that you are in control of your finances instead of your finances controlling you.