Managing Your Debt
Begin by making a list of all your credit cards along with toll-free numbers and outstanding balances. Look at recent statements to find the interest rate you are being charged on each card. You may be using a card that is charging you 18 percent or 21 percent interest and there are better rates available. This list can also be helpful if your cards are lost or stolen.
Add It All Up
Now, add up all of your credit card debt. Do you have any mortgage or equity loans? What about auto or school loans? You should add these payments together. What percentage of your income is used to pay the debt? You should strive to set a limit at 35 percent of your gross income.
Consolidate
If you have several charge cards, you may want to consolidate them on one card, hopefully with a lower rate of interest. Some cards offer low rates for the first several months. If you discontinue the use of any card, you may want to destroy the card and cancel the account, or place it in a safety deposit box.
Explore Debt Management Options
Traditionally, many people want to have their home mortgage paid off before their retirement years. Yet, equity loans remain popular and such loans add to home indebtedness. Some people have used equity loans to consolidate their debts. However, placing short-term credit card debt on a longer-term equity loan may be more expensive in the long run.
(Mr. Wallace holds NASD Series 7 (General Securities) licenses and Group I and IV Life-Health Insurance Licenses. He is a Registered Representative of MML Investors Securities, Inc., an Investment Advisor Representative of Spectrum Strategies, LLC, and an Investment Advisor Representative and Registered Representative of MML Investors Services, Inc. You may reach him @ ejwallace@finsvcs.com or visit his website at spectrumstrategiesllc.com.)
Paying Minimum
At a minimum, credit cards have changed the way people shop and budget their expenses. Today, some will buy an item and charge it to their credit card with the expectation that their next payroll check will be used to pay off the bill. In the meantime, other expenses may build. Thus, when the next monthly statement arrives, some individuals end up paying only the minimum amount due.
Unfortunately, debt can build up very quickly on a charge card, especially when only minimum payments are made.
So, what's the best way to manage debt? If almost every month your statement records a balance due being carried over to next month's bill, the following process may help you gain a better handle on your debt.
Discipline
If you're late, be proactive. Sometimes, for one reason or another, it's difficult to make a timely bill payment. You may find yourself short of cash. If this happens to you, you should always take the initiative and contact your credit card's customer service representative. Quite often, they may assist you and provide you with options to make payments.
If you want to avoid the charge card debt syndrome, establish a savings account. Resolve to regularly save for your purchases first. Or, you may arrange a layaway plan with a business or store.
A National Problem
Overextending credit card debt is, indeed, a national problem. However, debt management has helped many people adjust their buying patterns by adopting a more disciplined approach to shopping. With better debt management, finances become more manageable and items to be purchased become part of your budget. As a result, the checkout counter can be approached with cash or check in hand instead of credit cards — a welcome solution.
