For many people, 2009 will be all about just one thing – being able to make ends meet to pay bills every month. Often half these bills are loan repayments on a car and a mortgage. After this there is the payment of credit card balances; with many credit card companies charging anything from 10% to 18% on the outstanding credit card balance. Even at 10% interest, this quickly becomes a tidy sum in the way of monthly interest for those who use their credit cards frequently.
Basically, living on credit is as bad a survival strategy as can be and it leaves nothing for an emergency. To be able to cope with emergencies, and to save something for a rainy day, you should concentrate on wiping out outstanding credit card balances. To do this you firstly should consider methods of bringing down the credit accumulated on your credit cards.
One option is to go to a bank that offers a low interest bank loan. If a bank loan is available at an interest rate lower than the interest rate of any credit card debt, then availing that loan is a viable option. Should you go for this option, then remember to go for a fixed interest rate and not a floating interest rate. A floating interest rate could sometimes become higher than the interest rate on the credit card, even if it wasn’t at the time you took the loan out. Furthermore, such a bank loan should only be taken on if you are sure to discontinue ongoing use of your credit cards, and you are certain that your monthly budget allows you to repay the loan consistently. To do otherwise would be counterproductive.
Another option is to seek out a credit card companies that offers lower interest rates if transfer an outstanding balance of a previous credit card to that company. This can be an effective money saving formula if you do some homework through the internet. In this way you can reduce the interest you are paying and start making inroads on the core debt as well; queries should be done to zero in on such a company before you commit to this option.
Of course, these are solutions for those who have already accumulated credit debt. If you are thinking about getting a credit card and don’t want to fall into this trap, then think about the fact that the best way to avoid the pitfalls is by not having credit in the first place. Controlling and limiting credit card use is the first step towards lessening credit balances. Pay cash as often as you can and use a credit card only when it is unavoidable. Try to stick with one credit card only to keep track of your spending more easily. Too many credit cards can make it easier to rack up a lot of debt inadvertently. You can avoid this by sticking with one credit card which you pay in full and regularly.
To take things one step further, using a credit card continuously to tide over ‘emergencies’ is not sufficient. What you truly need is to have a budget to manage your money more effectively, instead of relying on credit. Aim to always put something aside every month; going above and beyond paying off credit debt. Those who have too much credit should first pay it off and then concentrate on not accruing more credit. Availability of credit leads people into an illusory world of financial security; thinking they have more than they in fact do. Of course, some sort of a monthly payment for a car or house might be necessary. The key is to be savvy about what you borrow and be sure these loans are realistic for your particular situation. When you opt for a loan, be realistic about the amount you can afford to spend on your car or home loan so that the monthly payments don’t strain the budget.
To truly eliminate bad credit and to be secure that you have everything you genuinely need, then budget a small provision so that you have savings being regularly made over and above paying back credit card debt and other financial commitments. If you fail to make these provisions, then you will soon slip into a financial ‘danger zone’.