Credit card debts result from when a client of a credit card company purchased an item or services through the card they use. Debts accumulate increase with interest and penalties for late payment had made the total amount due become larger.
Credit card debt is said to be increasing in the industries areas. Sometime the late fees, over the limit fees, high annual percentage rates, and universal default overcome customer who frequently do not pay off their debts, and the customer declares bankruptcy.
The real culprit behind the scenario is the desire to spend money. Many other culprits seem to be the causes of credit card debts such as lack of concern that their unable to meet the credit card payment obligation. There is no creditor hounding us for the payment and lack of self-discipline in dealing with credit management. We never know how to spend wisely and every single cent spend go toward keeping up with the minimum payment. Unfortunately this distressing situation is the common norm of many people.
Beware of this situation, do not fall in too deeply and dire till unable to solve the debts. An importance aspect that is not always addressed is why you go too deeply into debts. Why you keep charging the item you couldn’t afford? Why you have urge to use the plastic card for thing that wasn’t necessary, even when you struggle to make the payments? What causes your compulsive shopping?
Another negative consequence of using credit card is that you will never feel like you are spending the real money. The pleasant feeling you experiences when you purchase the items are disconnected from the unpleasant feeling of making the credit card payment when received the statement. To get control of your credit card spending you need to examine what money really means to you. Studies show that people with low self-esteem tend to purchase more the thing they don’t need.
How to prevent credit card debts had been seriously studies. There are three step plans and walk away to debts-free-living. Through an intensive understand the financial and take control of it and making it better than other. The three steps are as following:
1.0 Understand your spending
1.1 Find out are you in debt danger? Through the questionnaire below:
- Do you seem to worry about money most of the time?
- Has living paycheck to paycheck become a normal routine for you?
- Are you near or at the credit limits on your credit cards?
- Are you concerned you’ll receive calls from creditors?
- Do you find you sometimes have to borrow money from friends or family to pay the bills?
- Have you ever thought about bankruptcy?
- Do you charge more each month than you make in payments?
- Are you worried that your spending habits are jeopardizing your future?
- Does it feel as if you’re always late paying your bills?
- Do you feel you need to earn more money to keep up?
1.2 Learn the real scoop of on the ten biggest debt and the myth
Myth 1: I’m a loser and a failure because I’m in financial trouble.
Reality: You have to accept responsibility for your actions and remember that you did accept the credit with the promise of paying it back. But most families and our schools do a poor job of teaching financial responsibility. How many classes did you take while growing up that taught you how much credit you should accept? Maybe the truth is that you made a mistake and got in over your head because you didn’t know better. If you can learn from this mistake, you are neither a loser nor a failure. Accept your setback, learn from it, and move on.
Myth 2: My financial condition is so bad that my situation is hopeless.
Reality: Although your problem may not be solved in a way that you would envision, a resolution can always be found. Open your mind and be realistic about your options. Ultimately, you have to choose a solution you are most comfortable with.
Myth 3: The credit card companies wouldn’t send me applications in the mail if I couldn’t afford it.
Reality: Wrong. The credit card companies are simply making you an offer based on mailing lists or research they have performed. It is your responsibility to determine whether you can afford to accept their offer.
Myth 4: Everything is okay because I pay the minimum payment due each month.
Reality: By just paying the minimum payment on a debt, you extend your payments for many years. If possible, send more than the minimum payment. If that isn’t possible, you are probably living close to the financial edge. What would happen if you were injured or sick or could not work? Simply being able to live from paycheck to paycheck is not a sign of financial well-being.
Myth 5: If my debts get to be too much, I’ll just file for bankruptcy. Reality: Bankruptcy is a very serious matter and should be a last resort, not an easy out. It is a legal case filed with the bankruptcy court that is a matter of public record, and it can be reported for the rest of your life if you apply for certain loans, life insurance or jobs. Many people who have filed bankruptcy wish they had tried other alternatives before filing.
Myth 6: It’s okay if I take a cash advance to keep me from falling behind on my payments.
Reality: Some people take cash advances on their credit cards to pay their other creditors ”on time.” It is better to accept a late payment than to borrow your way deeper into debt, just to pay for bills you can’t afford. What often happens is you put yourself so deep in debt that it is nearly impossible to improve your situation without significant negative marks being made on your credit report.
Myth 7: I can wrap up all of my credit card debt into a home equity loan and my interest will be tax deductible.
Reality: You have just placed your home at risk and could lose it if you fail to make your payments. Nobody ever plans not to be able to make her payments. The reason the lender uses your home as collateral is so she can take it from you if you default on the loan. As for the tax deduction, who knows whether the interest will be deductible for the life of the loan? Credit card interest used to be deductible but no longer is. Are you confident that home equity interest will always be deductible?
Myth 8: Credit is bad.
Reality: Wrong. Credit can be used for many good and worthwhile purposes, such as buying a home. Credit cards are very convenient when making purchases as long as you have the money to pay off the credit card bill. Credit is like many other things in life: When used incorrectly, it can hurt you.
Myth 9: If I don’t use credit, I’ll never be able to buy anything.
Reality: If you don’t use credit, you won’t have debt. Remember when people used to pay for purchases in cash? If you want something bad enough, save for it. It is significantly more rewarding to purchase something and own it outright than to create another liability.
Myth 10: If I cosign a loan, the lender will never come after me.
Reality: You cosigned for the loan, which means you promised to repay the debt if the borrower couldn’t. When the borrower is unable to pay back the loan, you are on the hook. Unless you are prepared to repay the loan when the borrower defaults, you should never cosign any loan.
2.0 Repay sensibly to payoff what you owe. Small step can be a huge different.
Learn how to make a realistic repayment plan and follow the five ways to reduce your debts. Here’s just one reason to start managing your credit debt now: If you should ever not pay a credit card balance, that blotch stays on your record and can prevent you from getting a car loan, a mortgage or a plain old department store credit card. (If you should ever declare bankruptcy, forget it — it will be on your credit record and affect your credit rating for seven to 10 years.)
Here are some things you should know about getting off the revolving credit merry-go-round:
1. Pay more than the minimum payment each month, if you ever hope to pay off your credit card debt. You must also pay on time or a finance charge will be added onto the total, creating a larger minimum payment for the next month — and a larger finance charge added to the total again if you don’t pay it.
2. Get a system for credit card debt reduction. You need your own deadline each month for paying bills. There are great software programs for keeping track of your financial records (and even writing checks). Quicken, by Intuit, is a popular money-management program. So is Microsoft’s Managing Your Money.
3. Negotiate with credit card companies. The amount of credit card debt in this country has made creditors realize that if they don’t want people backing down from their obligations completely (in other words, if they want to get any money back), they have to make deals, like these:
4. If you have a limited budget for debt reduction, write letters to each of your creditors acknowledging the situation, and tell each one when you can begin repayment. They’ll appreciate your openness and likely be a lot nicer to you. You’ll get yourself some breathing space (something we all need when we’re dug in deep), and dealing rather than hiding will help boost your bruised self-esteem.
5. If you have a limited budget for debt repayment, write down what you can pay each creditor each month.
Here’s a sample budget:
Say you owe a total of $1,000: $200 to the dentist, $400 to the doctor, and $400 to the accountant who got you out of trouble with the IRS last year. That means 40 percent of your debt is to the doctor, 40 percent is to the accountant, and 20 percent is to the dentist. If you have $50 a month for repaying debt, that means the doctor gets 40 percent of $50, which is $20, as does the accountant. The dentist gets $10, or 20 percent of $50.
A final note on dealing with creditors: Keep your cool. It will make you feel better. And remember, some creditors have been taught to be mean and nasty. Don’t be intimidated. You have figured out a plan and are truly attempting to deal with your situation.
3.0 Get financial healthy
It seems the better consumers get at paying off their credit card balances each month, the nastier the companies get. Why? Pure dollars and cents. The better you are at paying off your balance every month, the less profit for the company. Companies are responding by becoming more creative in finding ways to make money off of you. Although some of the shadier practices are being challenged in court, most are legal. It is more important than ever to master the rules of the game.
Although I would prefer a world without credit cards, there are some reasons you should have one — and I mean just one. (Unfortunately, for most people, “just one” becomes “just two,” or …) Holding one card and paying off the balance on time helps establish your credit history. And you may need a card for travel expenses or emergencies. Aside from those cases, however, you should keep your credit card spending to the absolute minimum.
Rule 1: Don’t be a revolver
The first rule of credit cards is avoiding the nefarious “balance.” Carrying a balance means paying far more than you should for everything your charge to your card. And it is one of the fastest ways to fall deep in debt.
Are you what the credit card companies call a revolver — someone who carries a balance — or are you a freeloader, someone who pays off her balance every month? With any luck, you are a freeloader. If you pay off everything you charge within the grace period, the time between when the purchase is paid and when your bill comes due, you will not get stuck in the trap of paying interest.
It is another story entirely for the revolvers who carry a balance from month to month. Revolvers get no grace period. They just get stuck paying more and more interest — paying far more than the amount the item originally cost.
Rule 2: Read Everything
Read every form for any potential credit card account with a magnifying glass. You may, for example, be asked to print your initials somewhere on the application. But read the small print and you find you have signed up for insurance — credit card insurance, life insurance or disability insurance and anything else that arrives in the envelope. Issuers are free to change the terms of your card agreement with as little as 15 days’ notice. Typically, the notice gets slipped in with your monthly statement. Typically, it goes unread.
Rule 3: Avoid Late Fees
Stay free of the triple whammy known in the business as “tiering.” One late payment and you are immediately socked with a late fee — generally $29 (up from $12.50 just five years ago). Then you have a larger balance (after the $29’s been added in) and your minimum monthly payment has gone up too. What is more, one late fee and your card issuer may hike up your interest rate.
Rule 4: Fight Back
If your credit card issuer is squeezing you, complain. Competition among credit card companies is fierce. Use that leverage to get what you want. Often you can get a late fee waived or your interest rate lowered just by asking. Most companies will make adjustments at least once.
Rule 5: Shop around
There is a lot of fish in the sea. There is no reason to hold a card that has a high interest rate or a short grace period. Go “rate surfing.” Get the interest rate you want. Get a card with no annual fee. Compare the rates and terms of several cards. Start your search at CardWeb.com, bankrate.com, ABC guides and Credit Choice.
Rule 6: Check Your Credit Report
An especially dirty trick played by the companies is not reporting a good customer’s on-time payment history to a credit bureau, lest competitors steal their customers. So if you are planning on getting a mortgage or other loan, it is a good idea to ask whether the company is reporting your good payment record to the credit-rating bureaus when you check your credit report. But check a few months before applying for a mortgage, which gives you time to correct any mistakes.
Rule 7: Stop spending
Ultimately, this rule will make the most difference in your financial life. Make it hard to use your card. Don’t leave home with it. Financially healthy people do not use credit cards for borrowing money and paying it back over long periods of time at high interest rates. They do not buy things they can’t afford. Many people mistakenly believe they’re on top of things as long as they make their minimum payments religiously and on time. But they’re not. Keep a card on hand for emergencies. The rest of the time, keep it frozen in the middle of a carton of milk.
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