Reducing Credit Card Debt Starts With Understanding How It Came To Be
1:22 AM
Most people have credit card debt because they usually spend more money than what they earn. This affects their personal finance plans. Nevertheless, certain other factors can compel an individual to end up with thousands of dollars in credit card debt.
Carrying such a large debt load, we often sit back and wonder how we got into this situation. Truth is, there are four main areas that bring about heavy credit card debt, and although many of them are outside our control, we should certainly recognize the circumstances that led us here. And then we can start effectively repaying the large debt and improving our negatively impacted budget and personal relationships. Finally, once we have this bad karma behind us, we will be able to identify the signs of mounting credit card debt before it gets us into trouble again.
1. Unnecessary spending: When we buy on credit, we are often spending more than we earn. We need to recognize this behavior as problematic. The good news is that it is easy to spot: whenever we make an unnecessary purchase that exceeds our budget, we are usually paying with our credit card. The other good news is that we can control this type of spending by limiting luxury item purchases, including entertainment spending. If we can curb such spending, the money we save can be directed at repaying our credit card debt, and this is exactly what we want.
2. Large unexpected expenses: Although large credit card balances do not appear overnight (not usually, anyway), it is quite possible that we noticed from one statement to the next that the balance at least jumped. This is often the result of a series of large unexpected expenses. The biggest culprits are home and automobile repairs, which not only surprise us the first time around, but seem to reappear shortly after we make our first repair. While we likely had the good intention of repaying this credit card debt as soon as possible, it is common that we become complacent about it as it means cutting back in other areas of life. The result: we carry larger credit card balances and have higher minimum payments to make. By repaying this debt swiftly, we are able to enjoy more of the money we earn.
3. Prolonged Medial Expenses: When someone you care about is ill and requires prolonged medical attention, paying the medical bills with a credit is both convenient and often our only method of payment. Often, however, the treatment and/or prolonged hospital stays push our credit to the limit or beyond. This is where additional credit cards come in handy. If we are not excessively careful during such emotionally difficult times, we will rack up our balances rather quickly. Ultimately, we may find ourselves unable to make the minimum payments on our credit card debt, which will not only impact our overall financial health but our credit score as well. For this reason, medical expenses are one of the most popular reasons why people file for bankruptcy.
4. Unplanned loss of income for an extended period of time: Losing our job is never fun, particularly these days. In order to continue feeing our family and maintaining the household, it is common for people to resort to available credit card limits. While this is understandable, we must also do our very best to curtail our lifestyle during such times (research suggests that we do not, however). Eventually, our credit card debt climbs to the point where our lack of income combined with higher minimum payments lead us to a trustee's office. While unemployed, credit card debt can quickly spiral out of control. If bankruptcy becomes our only option, then finding a job will become even more difficult (since most employers obtain a credit history before extending job offers), particularly in a competitive job market.
Our most sensible tactic when dealing with credit card debt is to reduce our expenses. In many cases, this might mean leading a simpler life, such as going without certain luxury items or cutting back on entertainment spending. Of course, there are plenty of other options available and they all work well on their own or in combination with others. Still, this never means sacrificing life altogether; it simply means taking a more active role in repaying our credit card debt. After all, once we repay our high-rate credit cards and lead a debt-free lifestyle, we are better able to weather future financial turbulence and put a healthy savings base in place.
Carrying such a large debt load, we often sit back and wonder how we got into this situation. Truth is, there are four main areas that bring about heavy credit card debt, and although many of them are outside our control, we should certainly recognize the circumstances that led us here. And then we can start effectively repaying the large debt and improving our negatively impacted budget and personal relationships. Finally, once we have this bad karma behind us, we will be able to identify the signs of mounting credit card debt before it gets us into trouble again.
1. Unnecessary spending: When we buy on credit, we are often spending more than we earn. We need to recognize this behavior as problematic. The good news is that it is easy to spot: whenever we make an unnecessary purchase that exceeds our budget, we are usually paying with our credit card. The other good news is that we can control this type of spending by limiting luxury item purchases, including entertainment spending. If we can curb such spending, the money we save can be directed at repaying our credit card debt, and this is exactly what we want.
2. Large unexpected expenses: Although large credit card balances do not appear overnight (not usually, anyway), it is quite possible that we noticed from one statement to the next that the balance at least jumped. This is often the result of a series of large unexpected expenses. The biggest culprits are home and automobile repairs, which not only surprise us the first time around, but seem to reappear shortly after we make our first repair. While we likely had the good intention of repaying this credit card debt as soon as possible, it is common that we become complacent about it as it means cutting back in other areas of life. The result: we carry larger credit card balances and have higher minimum payments to make. By repaying this debt swiftly, we are able to enjoy more of the money we earn.
3. Prolonged Medial Expenses: When someone you care about is ill and requires prolonged medical attention, paying the medical bills with a credit is both convenient and often our only method of payment. Often, however, the treatment and/or prolonged hospital stays push our credit to the limit or beyond. This is where additional credit cards come in handy. If we are not excessively careful during such emotionally difficult times, we will rack up our balances rather quickly. Ultimately, we may find ourselves unable to make the minimum payments on our credit card debt, which will not only impact our overall financial health but our credit score as well. For this reason, medical expenses are one of the most popular reasons why people file for bankruptcy.
4. Unplanned loss of income for an extended period of time: Losing our job is never fun, particularly these days. In order to continue feeing our family and maintaining the household, it is common for people to resort to available credit card limits. While this is understandable, we must also do our very best to curtail our lifestyle during such times (research suggests that we do not, however). Eventually, our credit card debt climbs to the point where our lack of income combined with higher minimum payments lead us to a trustee's office. While unemployed, credit card debt can quickly spiral out of control. If bankruptcy becomes our only option, then finding a job will become even more difficult (since most employers obtain a credit history before extending job offers), particularly in a competitive job market.
Our most sensible tactic when dealing with credit card debt is to reduce our expenses. In many cases, this might mean leading a simpler life, such as going without certain luxury items or cutting back on entertainment spending. Of course, there are plenty of other options available and they all work well on their own or in combination with others. Still, this never means sacrificing life altogether; it simply means taking a more active role in repaying our credit card debt. After all, once we repay our high-rate credit cards and lead a debt-free lifestyle, we are better able to weather future financial turbulence and put a healthy savings base in place.
About the Author:
Chris Blanchet is the author the Personal Finance Textbook Help Fix My Finances, which is also the basis for the Personal Finance Program of the same name. You can visit his blog at How To Repay Debt.com for more tips and advice on how to repay debt.
You can leave a response, or trackback from your own site.