For many years it has been a common practice for people to use a credit card to purchase things they cannot afford. The devastating effects of this way of life were all too sharply brought home to people all over the world when the recent recession hit and many lives were negatively impacted.
Paying off credit card debts is one of the most important financial turning points you can have in your life. Developing a strong plan of action is a large boost to your chances of success in this endeavour.
It’s important to see credit cards in their proper light. They are dangerous ways to borrow money. Cards usually have high interest rates which either start as soon as you borrow or a few months after you start using the card. The only way a credit card should be used is as a convenient way of paying for items when you settle the bill in full at the end of every month. They’re not something to use to buy things you cannot afford.
Unless you set the picture straight about credit cards before you pay them off you may end up in the same position in the future. If you feel like you will always be too tempted by the ease of purchasing that comes with a credit card then you need to make the decision not to own one again after your debts have been paid off.
In order to make a plan to pay money back you need a good idea of what money is available to you and whether you can increase this amount so you can make repayments with it.
Create a spreadsheet detailing all your income, expenses, assets and debts. List each debt separately and make a note of the rate of interest and the amount of interest being charged. Make this listing thorough for both incoming funds and what you spend. Don’t leave off sources of income or avoid listing purchases you don’t wish to give up. To get debt paid off and certainly to pay it off as fast as possible you must be prepared to make changes.
Examine your overview. Anything which is not a necessary expense can be eliminated from your purchasing. Purchases which are not necessary include coffees, socialising, body treatments, electronic goods or luxury items.
After you have eliminated unnecessary expenses you can examine all of your necessary expenses and attempt to reduce them. Examples of necessary expenses include rent, transportation and basic grocery shopping. You might choose to downsize your living space to reduce the cost of rent and bills. You can stick to a strict grocery budget which covers just what you need to get by and no luxury items.
When you change your spending practices significantly it is easy to feel like you’re sacrificing your standard of living. Try to see changes as improvements rather than sacrifices.
At various points in your life your purchasing has been outpacing your means. By relying on credit to bridge the gap you only end up paying for items over and over again via interest charges. This forms a trap which ruins your chances of being able to afford the items at some point in life. It’s better to have something when you can truly afford it and enjoy it rather than having things on impulse and getting into debt as a result.
As you make changes to your spending habits you should have some spare funds each month. You can increase this figure further by trying to earn more money as well as making an effort to spend less. Request overtime, seek additional employment and consider freelancing and independent employment as ways to improve your earning power.
The more effort you put into this stage of building up a repayment budget the quicker you will get out of debt. Additionally the more thoroughly you develop a proactive approach to controlling your finances the more likely it is that you will steer yourself clear of difficulty in the future.
ORGANISE AND PLAN YOUR REPAYMENTS.
From adjusting your incoming and outgoing funds you will have created a budget with which to make regular repayments. If this budget is going to be too small you can consider options like dissolving assets or selling possessions to boost ready funds.
Look at the list you made of your debts and choose how much of the repayment budget will be used for each one. Aim to cover all the minimum payments every month and after that allocate funds according to the amount of interest you are being charged.
Arrange to make repayments by a very secure method and verify that the payments have been received each time you make them. This means that you should steer clear of deadlines and do everything well in advance.
Make sure that you keep a financial cushion in your current account to absorb the impact of any problems. Ideally this cushion should be at least several hundreds. It is a regular occurrence in life that wage checks clear late and bills come in bigger and earlier than expected. If you bounce a debt repayment by charging to an empty bank account you could end up with two hefty sets of fees and this can slow down your repayment plan considerably.
Most creditors respond well to evidence that you are willing to make payments. Let your creditors know that you are setting out on a series of repayments at the maximum of your ability to refund them. Try and get the name and number of one person that you can call back if you have any questions or problems. If something goes wrong and you know you are going to miss a payment you can call this person up and try to negotiate a lower, charge free, minimum that month. If your payments are irregular or you are evasive about providing information to the creditor when it is requested then sympathy and leniency will not be offered to you when you need it.
Your repayments may make little impact on the debt at first if your interest charges are large. Don’t lose heart, the more you pay off the more headway your repayments will start to make.
As your owing balances get smaller do not permit yourself to become complacent. Don’t allow the debt to be left to balloon up again. Clear all balances and obtain written verification from the relevant company or companies that you have repaid in full.
Once you are out of debt preserve the habit of saving a portion of your money each month, even if this amount is smaller than before. Allocate this money to savings and secure, fixed rate investments. Start to build up the financial security that will be the legitimate way to support yourself in years to come.
Paying debt off once is hard enough so you don’t want to get into cycles of debt and repayment. If you can’t trust yourself to use a credit card extremely responsibly then don’t get another.