Ah, credit cards. Those magical pieces of plastic that get you things you want for free. That's free stuff right now, anyway. But if you're not careful, those fabulous shoes that originally cost $100 can cost you twice as much in interest and late fees. Sometimes it seems like you just have to use them, especially if you're trying to maintain a standard of living you can't afford. Credit cards can be a perfectly viable option in such times, but you have to know that you can pay that balance off in the near future in order for it to work. So when you do decide to use your credit card, make your payments on time and pay more than the minimum balance whenever possible. A more practical plan that yields immediate results is to ask yourself if you really need that new set of tools, new bedroom furniture, or whatever it is. If you don't need it, do NOT buy it. Once you've fallen into debt, you may have to turn to other measures to get yourself out.
Plan for Credit Card Debt Relief
Know how your credit cards work. It's easy to swipe that little card, get what you want, and forget about it. But this can cause all kinds of trouble. There are tons of credit cards out there with all sorts of terms and conditions. You should fully understand how your cards work, such as how much interest you accumulate when you only pay the minimum balance. If a card really is a bad deal for you, don't be afraid to cut it up and toss it. Pay off the balance ASAP and wipe your hands of it.
Write out a budget and stick to it. A budget is necessary for every household no matter the income level. You should have more money coming in than going out whenever possible. Start with a list of income sources, then list your recurring bills (rent, car payment, etc.), necessities (food, transportation, health care), and luxury costs (fun money). If your expenses exceed your income, make cuts. Do you really need a manicure every week? When it comes to your credit card bill, pay off as much as you can whenever you can.
If you're having trouble making credit card payments, contact the company. You lose your job, there's a medical emergency . . . you're up a creek without a paddle. It's always worth a shot to call up your credit card company and explain your situation. And do this as soon as you know about it, not when they've turned you over to a collector. The company might work with you and make up a new payment plan to accommodate you. Note: This method may be more effective if you actually have a financial emergency and not because you went on a shopping spree down Fifth Avenue.
Debt consolidation can bring all of your payments into one lower monthly payment. Debt consolidation can come in the form of a home equity loan or second mortgage. All of your separate credit accounts are consolidated into just one account this way, which can make tracking and payments easier. Really understand the consolidation plan before agreeing to it, as some can have extra charges. And know that home equity loans and second mortgages use your house as collateral, which can result in the loss of your home if you can't make payments.
Debt settlement and debt management companies are two different things. Debt management provides credit counseling and helps with forming a specialized payment plan for you. You pay the management company every month and they in turn pay your bills accordingly. Debt settlement companies claim to negotiate with creditors to lower your balance. Some of them can be decent places of business, but many of them are just trying to make a buck off you. You need to qualify for help from either company type, and debt settlement gone wrong can cause a bad credit rating. Research these companies thoroughly before signing up for services.
Bankruptcy
Bankruptcy is a little word that means you don't have to pay your debt anymore. Sounds great, right? Although this process gets you what you want, there are heavy consequences for your current and future financial life. You should file for bankruptcy only if you have no other option. Bankruptcy will stay on your credit report for ten years, which can make getting loans, buying a home, and other major financial changes in your life very difficult. There are two types of personal bankruptcy: Chapter 7 and Chapter 13. Chapter 7 means you lose almost everything—it's liquidated to pay your debts. Chapter 13 allows you to keep some things, like your house or a car, but you have to have a fixed income to qualify. Your future income goes toward a new payment plan, and it will need to be paid off anywhere between three and five years, whatever the court decides. Hopefully, it won't have to come to this. It may be painful to scrape together monthly payments, but you'll feel so much better when it's all over.
