Credit card debt is a growing problem in the 21st century. Almost 60% of American households have a large balance owing on their credit card of choice, debts of up to $10,000 are quite normal according to research that has been conducted. Other research that challenges this huge sum state that the average is in the region of $2,200, still a frighteningly high sum that will have to be repaid at some point down the line.
The UK problem does not show anything different to our American cousins. Financial experts state that we in the UK owe approximately 56 billion to the credit card companies, and things are getting worse every year.
Eliminating credit card debt is not a short term commitment. For many, the answer is to transfer the balance of the debt to a different credit card provider, thus giving them six months interest free time on the debt outstanding. At this point, the credit card owner should be paying every spare bit of money they have to reducing the debt. But alarmingly, instead of reducing the debt, they spend even more on the credit card until the balance owing becomes totally unmanageable.
Some tips for avoiding or eliminating credit card debt are as follows:
1. Use your credit card wisely and employ prudence at all times. Many people seem to be following a trend of using their credit card to fund their day to day living expenses. This is a major mistake. Credit cards should be used for emergency financial situations only. If for example, your car breaks down unforeseeably and you simply haven’t got the funds available in your bank account to pay for the repairs, the credit card can be used to fund the essential repairs. Likewise, if the credit card is used for gaining cash, the interest charges and fees are considerably higher for what credit card companies deem as cash borrowings.
2. Pay more than the minimum repayment required by the credit card company each month. Credit card companies love it when borrowers only repay the absolute minimum fee due; this enables the debt to stay pretty static and the lender will never reduce the balance but merely cover the interest charges that are levvied.
3. It is vital to make your repayment before the due date set by the credit card comapny. Every credit card company will set a date that they want you to have repaid some of the debt by. Anyone who fails to do so will incur a fixed penalty charge for failing to meet the terms and conditions laid out by the credit card company. A charge for something as simple as not meeting a deadline is very easy money for the credit card company, and millions of dollars/pounds are added to the debt of literally hundreds of thousands of customers each month due to this oversight.
4. Stop using the card altogether until the debt has been significantly reduced. As I mentioned earlier, the worrying trend of continual spending on the credit card is commonplace in society today. The train of thought for the borrower should be that if they can’t afford to buy something by using part of their normal income then they shouldn’t buy it. Credit card companies are all to obliging when increasing the spending limit on a customers account.
5. Do not sign up to for a credit card in the first place unless you have the self control to manage the card properly. People want things in a hurry nowadays; they simply can’t wait until they have saved up for that new impulse item. A credit card will enable them to get their hands on that ‘must have’ purchase immediately. Try saving for up for your purchase instead, it will give you more satisfaction to know that you have sacrified your normal spending habits to buy something that you really want. Put a little money aside each month out of your wages until you have enough money to buy the item outright.
Credit card companies are amongst the most profitable sector of the finance market, and the good news for the shareholder is that they are getting richer. We, as consumers need to take stock of our personal financial situation and begin to practice better money management. Such things as the credit crunch may not have hit so hard had we as a society not been so willing to sign up with the credit companies in the first place, and inevitabley find ourselves with debt that can very quickly become unmanagable. Set yourself a personal monthly budget when it comes to spending, that way you will only spend what you can ultimately afford.
Credit cards can be wonderful items when needed for emergencies and can help people gain better credit scores if managed correctly. But for those who love to spend, heed the warning that money borrowed will always have be paid back and with interest!