No one wants to have bills, especially credit card bills and other high interest loans. Nonetheless, as more and more people find themselves out of work, you may find yourself building up more debt than you are accustomed to having.
If you lose your job or experience some other financial setback, it may not be long before you find yourself in a bit of a hole that you want to dig your way out of.
Once you have found a new job or passed the financial hurdle that caused the debt build-up, you should prioritize your bills and come up with a budget to pay off any debt.
First of all, it is unrealistic to think that you might carry five or six credit cards in your wallet and never use any. You may want to pay off your balance every month but maybe the balance has crept into the thousands and it is unlikely that you will have that kind of expendable income just sitting around.
First look at all of your bills and write down what they are. Beside the list of bills, write down your minimum payment, your interest rate and your pay-off date. There are certain bills you will have to estimate such as utilities, groceries, etc.
You are making this list in order to come up with a very basic budget. Be sure to factor in reality. If you know your closest friends will want you to go see a movie and get dinner afterward every other week, budget that in. Set a realistic figure and stick to that dollar amount.
Realize that very few people in America live debt free and even if you are able to eliminate credit card debt, it is still wise to have at least one credit card for emergencies.
If you know you don’t want to have to rely on a credit card for emergencies, start building a rainy day fund that you don’t touch. Preferably set up an allotment which comes directly out of your check so you never miss the money.
Now, back to your list, if you have more than two credit cards, determine which ones you want or need to keep. Typically you should keep cards which do not charge annual fees and preferably cards which have the lowest interest rate.
If you have more than one card which falls into this category, choose to keep the card which you have had for the longest amount of time as length of credit history can help your overall credit rating.
Suppose you narrow down your cards to three – none of which have an annual fee, or the annual fee is waived with use, and all of which have similar interest rates. If you’ve had all of the cards for a similar amount of time, you should next consider your credit line on each card.
If you decide to keep two cards, one with a balance of $5000 or less along with a second with a higher amount should more than suffice. If you owe more than a few hundred dollars on all of the cards, decide which card you can pay off first based on the amount owed.
Temporarily take this card out of your wallet so you can no longer spend on it. If necessary, destroy the card. Once you pay off the balance, request a new card on the same account.
This will become your emergency card or the card for routine use-but on the condition that you pay it off each month. Because you will be paying it off each month, your balance will stay low and the interest you are paying will not build up.
In addition, because you will now be making an earnest effort not to spend simply for the sake of spending, you should be able to apply more money toward the card with the higher balance.
Always pay more than your minimum payment and as much as you can afford. If you had decided to keep three cards, re-evaluate and get rid of one. You can cut up the card as you make payments. Don’t close the account until it is paid off lest you’re asked to pay it in full.