| Topic - Control Your Credit Card Debt | Education Center |
It's a common sight to see people pulling out plastic to pay for everything from groceries to gasoline to movie rentals. All it takes is a quick swipe of the card through a little electronic box and a signature. However, the convenience of using credit cards can lead to a false feeling of financial security-at least until the bills arrive.
Robert McKinley of Ram Research says for the first time ever, bank credit card purchases last year totaled more than a trillion dollars. Other statistics are equally staggering -- for instance, the average family has a credit card balance of $7,000, and pays out $1,000 a year on interest alone.
If you find yourself overwhelmed with credit card debt, don't despair. With discipline and a change in spending patterns, you can get out of debt and concentrate your efforts on saving and investing.
"Getting out of debt is easy, but it won't happen overnight," says Steve Rhode, President of Debt Counselors of America. "You can't borrow your way out of debt. It takes discipline and time, and requires making more than the minimum payment every month."
Here's an important rule to remember: resist the temptation to dig into a 401(k) or other investment fund to pay off your debt. "When people get into debt, they often liquidate investments to pay it off," says Rhode. "The problem is the cost of lost opportunity. They could be losing 15 to 20 percent return on that money. It's one of the costlier ways of paying off debt."
Debt Counselors of America have identified five easy steps to get out of debt:
The temptation to charge is difficult to curb, but not impossible. Here's some helpful hints for ...
Avoiding Temptation
There are no easy, miracle fixes for managing credit card debt. But there are some common sense things you can do to stop increasing debt.
Statistics provided by Ram Research show the average family has 14.7 cards, including bank credit cards, gasoline cards, store cards, debit and ATM cards. Rhode recommends that people limit themselves to one or two credit cards. If you have excess cards, it's best to close the unnecessary accounts and cut the credit cards up.
You may be enticed by the flood of pre-approved credit applications that arrive in your mailbox. Don't let yourself get carried away. Rhode suggests evaluating each deal to see if you can get a better interest rate, and shredding the applications that you're not interested in.
It's also important to develop a budget and stick to it. For a sound budget creation strategy, see How Do I Handle My Debt? And tap into the collective wisdom of the Investorama community on the Control Your Budget message board.
And while you're establishing a working budget, don't forget to ...
Begin (or Continue) Saving and Investing
If you're faced with a hefty credit card debt, you may feel like you'll never be able to start saving. Don't wait until you have all the bills paid off before you begin investing. As you work on controlling your spending habits, work equally hard to establish good savings habits.
Look for ways to cut back and put a few dollars aside each week. Even small weekly investments of only $15-20 will add up and pay off in the long run. When you get your debt paid off, you can increase the amount you are investing and build up to your particular savings goal.