Credit Card Tips Blog

Credit card debt can be overwhelming, when minimum payments seem high and there is just not enough money within the income to make all of the payments and pay for your day to day expenses. There are five steps that you can use to successfully overcome credit card debt,

1. Recognize the Debt

   It is impossible to get out of credit card debt until the consumer realizes how dire the situation can be. Recognizing the debt and establishing amounts that owe to each creditor is the first step of the debt repayment process. Take a pen, paper and recent statements to tally up just how much debt has been accrued. Be sure to include credit card debt, personal debt with loans to friends and family members and any outstanding bills, loans and credit lines. Tallying it up is an eye opener which can often shock the card holder into beginning an aggressive debt repayment plan.

2. Stop Spending

   Put the credit cards away for this portion of the debt repayment plan. Whether you have to freeze the accounts with the credit card company or literally put the credit cards on ice – it is important to avoid accumulating any additional debt once the repayment plan has been started. After the credit cards have been put away it is time to establish a repayment plan!

3. Make a Plan to Repay the Credit Card Debt

   A plan to repay the credit card debt can include the list that you have created in step one. In addition to these total amounts owing, calculate the amount that these debts are costing each month by multiplying the interest rate by the balance of the outstanding debt. Tally the list and arrange the debts from most expensive to least expensive. Number one is going to be the most expensive debt which you will repay first, when number one has been repaid you will work your way down the list repaying the same amount that you have established in the budget for debt repayment.

   How do you know how much should be allocated towards debt repayment? For optimal results, fifteen percent of the income should be allocated towards debt repayment. Any less than fifteen percent and you could risk the debt taking over your life for years to come and any more could mean stress on other parts of the budget.

4. Create a Budget

   A budget will need to be created that allows you to allocate fifteen percent of your income every single month towards debt repayment. This budget should include portions for fixed and variable expenses, savings as well as the debt repayment. Variable expenses are often cut in half when the consumer has been spending outside of their means to accumulate high levels of debt. Sacrifices now will mean financial preparedness later!

5. Stick to Your Budget and Repay the Credit Card Debt

   Seeing statements arrive in the mail that outline the zero balance of the credit card are some of the most rewarding moments through the debt repayment process. Sticking to your budget will enable you to establish some sort of financial security and repay the debt while learning valuable personal finance skills that can help you in the future.

Choosing a credit card can be a difficult decision, after all, there are thousands of credit cards available from various financial institutions offer different rewards programs. The credit card should be chosen on the merits that benefit the consumer and fit in with their lifestyle and spending habits. Here are some things to keep in mind when choosing a credit card – whether it is your first or your fifth credit card:

What is the Interest Rate?

The interest rate of the credit card can directly affect the expense of the credit card on a monthly basis. The interest rate should be as low as possible – or as low as your credit rating will allow. Consumers with high credit ratings are offered lower interest rates than those consumers that have a lower credit score.

The interest rate will be multiplied by the balance to come up with the minimum payment amount. Keep this in mind if you intend to carry a balance on the credit card that you are choosing. Credit card companies have three tiers of interest rates; premium interest rates, elite interest rates and standard interest rates.

Maintain a high credit rating to get the lowest interest rate.

Are Rewards Programs Available with the Credit Card?

If the credit card comes with the choice to collect rewards, there are three options for these rewards; cash back rewards, rewards points which are often given for each dollar purchased with the credit card and travel rewards that can help you to collect points with your favorite airline or travel rewards system.

There are many rewards cards available, the choice is up to you – many programs offer flexible redemption programs to change which types of rewards are redeemed through the program. Look for a rewards card that has no monthly or annual limits on the amount of rewards that can be redeemed or earned as well as a rewards credit card that comes without a separate enrollment fee – aside from that of the credit card.

What Types of Fees Are Associated with the Credit Card?

For most credit cards, there is more than just an annual fee associated with the credit card. The annual fee is the usage fee for the credit card and is often put into place when cards are associated with rewards programs.

There are many other fees which should be priced before using the credit card to ensure it is used wisely; over-limit fees, late fees for payments that have not been received on time and balance transfer fees. Knowing these fees and the amounts that they could cost the card holder has a sobering effect and could help to avoid bad credit card behavior.