According to hoffmanbrinker.com, Americans owe $917 billion on revolving credit lines---including credit cards. Many people who have credit cards spend more money than what they earn and do not always pay their credit card balances off each month. Because of economic hardships, many credit card holders have defaulted on their credit cards or failed to make the monthly payments. Learning how to manage debt will help you spend wisely and free yourself from the credit crunch.
Paying off Balances
If you have a credit card, you should first focus on paying off your total balance. The sooner your balance is paid off, the higher your credit or FICO score will rise. A FICO score is a number determined by your credit report. Having a high FICO score or a score over 650 gives you a lower interest rate with a new loan or when you need to refinance. Carrying a high credit card balance and making minimum payments increases your debt-to-income ratio and lowers your FICO score. If you are unable to pay off a high balance credit card or transfer that balance to a low interest card, try to make double payments as often as possible to pay down on the balance.
Reasons to Use a Credit Card
Credit cards are not meant for extra spending but are designed to be used in either an emergency situation or knowing that the item you purchase can be paid off within the next billing cycle. If you are unable to pay off the item or services you just charged, you shouldn't be using a credit card. This type of spending behavior can lead to erratic spending or living above your financial means. Other reasons to use a credit card include making security deposits, ordering items over the phone or Internet or making reservations.
Credit Card Alternatives
Choosing credit card alternatives will help you manage your debt easier. Having a pre-paid credit card or gift card is one such option. Obtain cards at major retail stores or credit unions. There is generally an initial fee to purchase the card. Most cards allow you to add as much money as you would like to the card for future spending. Establish a budget and then use the pre-paid card in place of an interest-bearing credit card to buy household goods, engage in recreational activities and go shopping.
Debt Consolidation
One way to manage your credit card and financial debt is to consolidate your bills into one. You can do this if you have good credit and haven't missed any payments. Ask your financial lender about obtaining a debt consolidation loan or a new credit card account with a low interest rate. Transfer all of your balances from your old cards to the lower interest card or account. Make payments on the new account balance and try to pay it off as soon as possible.
Managing Spending
To get your debt management under control, you will need to manage how you are spending your credit line. People who are unemployed or are experiencing financial hardship often use their credit card to pay their bills and groceries. Avoid this if possible. Look at cutting costs around the home by eliminating any extras such as cable or cell phone service. Look for cheaper alternatives so you can veer away from charging living expenses on your credit card and go back to using cash. If you have a problem with compulsive shopping, leave credit cards at home when on vacation or going out to the mall and only take as much cash that you can afford to spend.
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