Stopping the Cycle: Conquering Credit Card Debt

Removing debt from your life is a hot topic these days, and it seems that everyone has a take on how to do it. Well, I am no different that any other entrepreneur or writer—because I too have some sound suggestions on avoiding and consolidating debt. These adages should be taken as they are intended—light hearted, without judgment, but stemming from experience. My experience with debt has been tumultuous at best, and the lessons that I have learned are common to many others. These lessons should be passed on, discussed, laughed at, scorned, and even applied to your own debt management process.

For starters, never sign up for a credit card just to get the free CD, tee-shirt, book, gift certificate, etc. The old saying that “nothing is free” rings true in these cases. These deals are always what they seem—to good to be true. That is because frequently credit cards marketed to groups that will sign up for them for the freebies (i.e. college students) hold high interest rates, poor customer service, and horrendously high late fees. These companies make their money of young and wary consumers, and they merely pave the way for continued credit card debt downfalls.

Secondly, never fall into the cycle of obtaining another credit card to merge balances. Yes, sometimes this debt technique might be beneficial, but usually you will continue to spend and rack up more debt on the new card. For instance, let’s say that you get a new card, interest free for a year, with an eight thousand dollar limit. From here, you merge three high interest credit cards onto the card for a total balance of seven thousand. Now you’ve promptly shredded and destroyed the old cards, and you are diligent at not adding new debt the eight thousand dollar limit card. But, what you didn’t account for is that once you start to decrease your bill the credit card company after several months of continuous and timely payments “graciously” increases your limit to ten thousand. So now, you have five thousand dollars in credit card debt with five thousand to “spend.” The weather is cold, there is three feet of snow on the ground, and you have twenty vacation days that you need to use or they will be lost. So you and two friends decide to whimsically take off to Tahiti for two weeks because you found a hot deal for less than a thousand dollars. In your winter stricken head you are saying, “Oh I’ve done so good so far. I’ll just make double payments when I get back.” In literally, the blink of an instant you have gone from diligent consumer to typical statistic. This scenario is only one of many that will prevent you from paying off that debt. Having a credit card with a “leftover” balance is like waving a steak in front of a hungry dog—the animal, no matter how well trained, will dive in and devour the temptation. More importantly, even low end interests rates continually add to your overall credit card bill. Generally, credit card debt takes ten to twenty years to pay off by using the minimum monthly payment schedule.

Hence, the only sure fire way to reduce your credit card debit is to remove the cards from your wallet and spending power. Using a debt consolidation service is an excellent way to do this. These services, plentiful and helpful, generally secure reduced or no interest fees on your cards, and they charge a minimal fee for their services. Additionally, your overall payments are almost always reduced, they work with you to develop a long term payoff plan (particularly one that will fit your budgetary needs), and your credit rating will improve with service to the program. The debt services that I have talked with all interview their clients, call two to three times a year for service updates and to check in with the customer, and monthly statements continually give you a sense of satisfaction because they reflect your continually reduced balances. The money that you pay to the service goes to your primary balances, and little if any if it is applied to interest accrual because interest rates are severely cut with the program. Lastly, debt payment programs prevent you from using the cards while in their care, prohibit you from applying for new credit until your current debt is paid off, and they make automated payments painless and simple. Once a month, like clockwork, a withdrawal will be made from your account into theirs. Then they will disburse the money to the appropriate companies, and you are worry free. For even more encouragement about the benefits of debt management programs, you should consider that for a standard credit card debt of five thousand dollars a debt service can secure your payoff in three and half to five years from your start date. That, right there, is a huge advantage over the ten to twenty years of payments through the credit card companies themselves.

Finally, removing credit cards from your life may make you cringe and loath the thought of not being able to shop on the weekly basis, but you can still shop and enjoy vacations and the finer points of life without a credit card. Most banks offer free debit cards with checking accounts, and these apparatuses work like standard credit cards. Also, be diligent and save a percentage of your weekly wages for your own pleasure. These “earmarked” wages should not be for your savings account, which is also a good idea (even if you only put in twenty dollars a month).

These “earmarked” wages are those that you can use to go splurge on pieces of a new wardrobe, go see the hottest summer concert, or use for vacation funds. Initially, you may have to take a month or two off from weekly (or daily) shopping excursions, but after you have your watering hole fund established you will be set. From then on, you will be able to spend freely and without guilt because you will know that this money is yours and does not have to paid back at the end of the month.