In a difficult economy, many people use credit cards to pay for purchases. When using plastic to pay for groceries, gas, and other necessities, it is easy for people to get carried away, and credit card balances can rise rapidly. In order to reduce or eliminate these large debts, it is important to develop a realistic repayment plan. To pay off balances that have been lingering for some time, follow these five simple steps.
1. Add Up Debt Balances
Collect every debt statement. Make sure to include credit cards, personal loans, store charge cards and any other accounts that incur interest. If any statements are missing, contact the card or loan company to request the balance. Write down each balance, and be sure to include the corresponding interest rate next to each number.
2. Set Specific Goals & Make Adjustments
Making a mental note to repay the debts is not a good idea. It is easy to think this will happen, but people who do not make a strong effort rarely follow through. Write down a target amount that is realistic. For example, if the total debt amount is $1,000, make a goal to pay $250 per month for four months. Since resolutions dwindle over time, it is best to make the goal happen in as little time as possible. However, it is also important to avoid neglecting other monthly obligations. If the amount would put a strain on the budget, see if there are any unnecessary expenses to cut. Magazine subscriptions, coffee club memberships, unlimited DVD rentals and other non-essential expenses should be at least temporarily suspended.
3. Avoid Adding More Debt
To make sure the total debt amount gets paid off, set a strict no-credit spending policy. Put away store charge cards and credit cards in a safe place. By spending only cash, it is easier to stay out of trouble. When people set a goal to eliminate their debts and wind up adding to them instead, they often get discouraged enough to stop working toward their goals. This is when debts usually start spinning out of control.
4. Look For Low Rates
If paying off the total debt amount in a few months is not feasible, consider transferring current balances to a new card with low interest or no interest. This is best for people who are sure they can repay their total debt amount within six months to one year. By transferring the total balances to a new card with a no-interest introductory offer, it is possible to pay debts off faster. Be sure to compare several competitors’ card benefits before signing up for a new one.
5. Return Unused Merchandise
Some people purchase items and wait to use them. If there are purchases that were made on credit cards or store charge cards, consider returning them. In most cases, items that remain in their packaging for more than a few weeks are not really necessary. Return all unused items, and use the refund money to pay down debt balances.
The only way to get out of debt is to set a strict plan and follow it. Many people make excuses to treat themselves or others to new items. Occasional treats are acceptable, but making a habit of using credit cards for purchases can be dangerous. However, there is nothing wrong with purchasing something that can be paid off that same day to simply build credit. Be sure to use credit cards to build credit, but do not use them as a way to regularly obtain items that are not affordable.