Best Ways To Eliminate Credit Card Debt
Wednesday, March 26th, 2008 Subscribe To Our Feed
Seems like everyone has at least one credit card, if not two or three, these days. And having a credit card makes a lot of sense. It’s a lot easier to carry round than money. It’s probably safer to use a credit card than money because you can get a charge back if you are not happy with the product you buy. You can travel to other countries and use your card. In short, using credit has been made easy and we love it. Getting a credit card has also been made easy to the extent that people will have two or three cards. Given that we love using credit cards and they are so easy to get, it is no wonder that people are getting into financial trouble. This article will cover the best ways to eliminate credit card debt.
Credit card debt can come home to roost in two ways. You can splurge out on all the latest gear, CD’s, gadgets, dining out and vacations and run up a huge debt. Or you can buy things but not pay the monthly card charges. This puts interest charges on the money you have borrowed, increasing how much you have paid for the original items. If you fail to pay each month the interest gets bigger until it gets out of control. In most cases, people with credit card debt make both of these mistakes.
The real killer with credit card debt is a lack of discipline and failure to set some kind of budget in your life. However the key to eliminating debt, or never even going there, starts with setting a budget. Once you understand your budget then there is no excuse of being ill-disciplined in your spending habits.
So a budget consists of knowing what disposable income you have each month and what goes out each month. Armed with this knowledge you can make adjustments to your spending decisions and know when you can buy something or otherwise.
Your disposable monthly income is easy to work out. It is all the money you receive after tax has been taken out. In most cases this will be through your job but there may be other income streams that you have set up like dividends from shares or a side business that you run. Wherever it comes from, tally up the total amount. This is how much you can spend each month.
Now you have to work out what you are spending your money on each month. First look at the essentials. These are things like mortgage or rent payments, utility bills, monthly commuting costs or the cost to run a car and food bills. All these things are needed by you and you can scrimp on these items. Add all these items up and subtract it from your monthly disposable income.
If you are in the red after this subtraction, then you have to look at living in a house that has cheaper rent or being more efficient with your use of electricity and gas. You may want to sell your car and rely on public transport. This may be extreme but it is the only way to get out of debt.
Hopefully, you will have some money left over after accounting for the essential items. If this is the case then you have money that you can spend however you see fit. If you have a large debt hanging over you then you should direct some of this leftover money to servicing and reducing the debt.
You can also indulge yourself and buy things that you really want, provided it is within the amount you have available. You may even think about putting it into a bank account as savings.
With this in mind, if you know that you have $30 a week for lunch/eating out then you have to plan accordingly. Do you buy lunch each day or save up the $30 for a meal out with your partner at the end of the week. You can’t have both.
Being in debt is like being in a big hole, that, unfortunately, you have dug yourself. The first way to get out of the hole is to stop digging. Setting a budget is your stop digging moment. Sticking to the budget is your way to lift yourself out of the hole or free yourself from debt.
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