In the last article I wrote about the value of the family budget. It is the most important document in helping you manage how much you spend every month, which will keep your debt in check. This article briefly touches on the subject of debt.
There are different kinds of debt. There's useful debt which would include purchasing a home, advanced schooling or career training and even borrowing to start your own business. Some expenses are unavoidable. Examples of that include computers for work or school, purchasing a car, insurance, clothing needed for work, and medical expenses just to name a few. The expenses we really need to manage are our discretionary expenses. These include vacations, eating out, other entertainment costs to include money spent on alcohol and tobacco products. For those who smoke, have you ever added up the annual cost of smoking cigarettes?
Charge cards started to come into use in the 1960s. They started off gas cards and store-specific shoppers cards. By the early 1970s we started to see the first modern charge cards that were designed to be used at many different stores and locations. Charge cards enabled American consumers to buy now instead of waiting until they had saved sufficient funds to purchase an item.
Remember lay away and the Christmas club savings accounts?
As charge cards increasingly came into use, consumer spending increased. This increase in consumer spending helped fuel the great bull market between the early 80s and the year 2000. Household debt and personal bankruptcies rose as well. Household debt rose to an all-time high in 2007 and has receded somewhat since then. The bottom line, when charge cards are used wisely, they provide us great flexibility. When used foolishly, they have led to the financial demise of many individuals and families. The rest of this article will be dedicated on a few strategies to help folks get out from under charge card debt.
So what you do if you've got a pile of charged up and you're having trouble making the payments or just can't make any progress? Well, first off, close all non-essential cards and stop charging on all of them. Develop a budget and figure out the maximum amount you can put down on charge card debt each month. Seek credit counseling if needed but be wary of scammers.
If you are a homeowner and have enough equity in your home; you might consider getting a home equity line of credit. You can eliminate your high interest charge card debt at a much lower interest rate and deduct the interest. It will also make your payments much more manageable.
If you are not a homeowner or you do not have sufficient equity in your home to get a home equity line of credit than consider the following steps:
Page 2 of 2 - Consolidate all your charge card debt at the lowest possible rate. You can also shop around for charge cards with lower interest rates that will let you roll over balances, possibly interest free for a period of time.
Pay off your charge cards from the highest interest to the lowest interest.
As you get your higher interest charge cards paid off, close them and increase your payment on the next highest interest card.
Once you get out of debt, live within your budget and pay off charge card balances every month. If you can't trust yourself, then use a debit card.
Always check your statements monthly. If you have any doubts about a charge accredited to your account call the company immediately. If there's fraud involved, report it immediately. You are only liable for the first $50. Also, beware of scammers selling credit card insurance. This type of insurance is unnecessary because federal law limits your credit card fraud liability.