Zero Out Those Balances on Your Credit Cards
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by: barrywaters
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Credit cards are a necessity for most people in this country. Everything from toll booth fees to library charges are put on credit cards. Instead of paying with a check or cash, credit cards are used. Credit cards are a convenient alternative to carrying cash. Some consumers, however, frequently use credit cards to purchase things for which they do not have the money. Not too long ago, if a consumer wished to buy an expensive item, he would save in advance of that purchase or use a lay away plan. Given the trend of easy credit this last decade, many people buy things with their credit cards before they have the money in the bank for them. They will then only make the minimum payment when the billing cycle ends. By continually paying off only the minimum balance, the majority of the payments are just pay the interest on the balance. Consumers are then paying off less of the balance on the card and give more money to the bank in the form of interest payments. Of the families that have credit cards, it is estimated that one in six pay just the minimum monthly payments.
It is very easy to give in to the instant gratification of using a credit card. But, to keep bills and spending habits in check, it is wiser to view credit cards as if they were checks. You would not write a check unless you knew you had the funds in your bank account to cover it. For everyday purchases on credit cards, the philosophy should be the same. Do not purchase something that is not absolutely necessary, unless you think you can pay it off in a timely manner. Emergency expenditures on your credit cards are a different story. But if you keep your regular everyday spending in check, you will have more wiggle room for emergency expenditures that you may have to pay off over time.
If you owe a significant amount on your credit cards and would like to start paying down that debt, the first step is to stop paying for things that increase your balance. The second step is to pay more than the minimum balance whenever possible. You pay the bank more and more in interest payments the longer you maintain that balance. The more money you pay them in interest, the less money you have available to pay off that balance. The bank makes less money off you, as you pay less interest on lower and lower balances. If you use many credit cards currently, try to merge the balances of several cards onto the credit card with the lowest interest rate. You should look into "snowballing" your debt, if you have hit the maximum on the lowest interest card. The idea of snowballing is to simply pay off the card with the lowest balance as a first step, which gets the ball rolling. Obviously, continue to make the minimum monthly payment on your other cards, so you do not accrue penalty fees. Do not reduce the amount of your payment each month, even as that balance becomes smaller and smaller. Move on to the next smallest balance, once the debt on the first card has been paid off. Maintain the same payments as you made on the first card. The new amount for the payments on the next card should be the same as what you were paying down on the last card, plus the minimum payment from the last card. This snowballing action will let you pay more of your debt as you reduce your balances more drastically. During your snowball, it is wise to evaluate the rates of your cards and consolidate the balances to the card with the lowest interest rate when you can. Doing so will free up even more money to pay down your debt, that you might have otherwise been paying in interest.
Many financial advisors find that snowballing gives consumers a rational and rewarding method to make payments and reduce credit card debt. Psychologically, it helps you focus on something tangible that will let you see results faster than if you try to tackle the balance on all your credit cards at once. While you are getting your snowball rolling, try not to charge any new things to your credit cards. It might melt part of your snowball and you will have to start it rolling all over again.
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