Saturday, November 17, 2007

How to stop using credit cards - getting out of debt

How to stop using credit cards - getting out of debt
Now what you have worked yourself into a corner with over using your credit cards? It is a common problem, many people are struggling with personal credit card debt. Plastic is just too easy, and on top of it all, unless you look at your past statements you can't remember what you spent all the money on. Now when you go to some places if it is below $25 they don't even have you sign anymore, they make it too easy to use your credit card. In fact, I crossed the boarder the other day and I could go to the credit card only lane, when I came back on the other side they didn't have a credit card only lane and I was kinda disappointed. Another example, I went to park at the airport the other day and you can't even get into the parking lot with out a credit card.

Here are some simple steps to follow to help you stop using credit cars:
  1. The first step is to talk with direct family members about the situation. All family members must agree to reduce spending until your family is out of this crisis. This should mean closing charge accounts and not using credit cards. If you feel the need to use plastic switch to a debit Master Card or some other debit card which only works if you actually have money in your checking account.
  2. You should contact creditor(s) and explain your situation to them. Try to get them to work out a plan so that obligations are repaid. Most credit card company's would rather have you pay them back then default on the loan and stop paying your bill.
  3. A lot of experts will recommend the you not carry your credit cards with you and to just leave them at home. This is easier said than done in a lot of situations. Again based on my stories above at the airport and bridge. The idea is if you want to use them, you will have to go home and then return to the store. If the item you want to buy is a necessity then you will have access to the credit. If it is an impulse purchase you have the travel time back home to reconsider.
  4. Keep your credit card limits low, if you have a $500 or $1000 limit and you can not pay that back, what makes you think you can payback $2000 or $5000? The key is, if you are already having issues paying back your debt on a low limit, then don't ask for credit limit increases. This is a solution that many try that ends up in disaster in the long run.
  5. Some experts say don't use credit for consumable items such as food if you do not pay in full each month. I agree witht this comment, but is is so easy to do. I also think that you should not pay for things over time on a credit card. Probably the most important rule, don't borrow money from a credit card borrow money from a bank. I wrote another post called finding cheaper loans that I suggest you check out.
  6. Do you ever hear those commercials on the radio about debt consolidation? Do you ever wonder how they can advertise so much? Most consumer finance companies that offer this service charge very high interest rates. These companies will appear to be your friends but you need to watch it very carefully. If you are not good at understanding contracts, or even if you are you should have a family member or friend look over the contract first with you to make sure you understand what you are getting in to. I would suggest you look for a company that is really a not for profit debt resolution company. You won't hear these guys advertising on the radio because they don't have tons of profit to spend on advertising. Funny how that works.
  7. Debt guidline: If you have more than 15 percent of your disposable income in debt payments, you should take steps to reduce your credit use. Disposable income is your net income after taxes and other payroll deductions. So lets do the math, if you bring home $1000 per month then you should not have more that $150 a month in debt payments. This doesn't mean that you are just making minimum payments either because you will never pay it off and you really won't be able to borrow any more. Remember the credit card companies don't care if you ever pay it off as long as you are making the minimum payment.
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