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Minnesota Mortgage Blog

August 18th, 2011 9:15 AM

While Americans are borrowing less and saving more in this difficult economy, there are still many U.S. households that are wrestling with the nagging financial problem of credit card debt. Overall U.S. credit card debt is smaller, but Americans still consumed $793 billion in revolving debt (i.e, credit cards) in May of this year alone.

Relying too heavily on credit cards can be an alarmingly easy habit to build. When your income is flowing, using a card as a simple catch-all payment method becomes a habit. This is especially true if the card carries incentives such as airline miles or other benefits that keep you using the card.

But if cash flow narrows or doesn't keep pace with the spending on the credit card, then carrying over a balance to the next month becomes the default position for too many American households. The second your credit card balance starts showing up every month like an uninvited — and growing — guest, it is time to bring things under control. Here's how:

1. Halt all unnecessary credit card usage. Some items, such as recurring charges for child care, might need to continue hitting your credit card, but eliminate everything else.

2. Start budgeting. In the same way that you can nickel and dime yourself into debt, you can nickel and dime yourself out of it. Outline all your recurring monthly expenses, as well as expenses you expect on a quarterly, half and annual basis. Consider other unforeseen expenses, such as car repair, and estimate averages for such expenses by looking through old receipts.

3. Narrow your budget. Now that you have your budget, how can you get lean and mean so that you can divert additional money toward paying off your credit card debt. Do you really need that sports package on your cable TV? What can you do without?

4. Do you have savings? Do you have a credit card balance? If you answered "yes" to both, then something is wrong. Compare your savings account's interest rate to your credit card's rate. You should notice a massive disparity between the two. While you want to maintain a certain amount of rainy day funds for the aforementioned unforeseen costs that can crop up, everything else should be diverted toward paying off your credit card.

5. Come up with a payment plan. Assuming that you still have a balance left on your card, you need to use your budget to determine how much you can pay each month to start paying down your credit card balance back to zero.

6. Unload. Now is a good time to go through your house and see what items you can get rid of. No, we're not kidding. That unwanted exercise machine in the basement that's doubling as a laundry drying rack could be one Craig's List ad toward becoming debt free. If you're serious about getting rid of credit card debt as quickly as possible, there's no shame in unloading unwanted items to generate liquid cash you can use to pay off your debt. Whether its online classifieds or a garage sale, turn clutter into cash you can use to pay down your debt.

7. Come up with new ways to save money. If you don't already, start clipping coupons and using Groupon and other online tools to save. Think hard about how you can take advantage of sales and any other opportunity to reduce your costs. Every penny you don't spend is money you can use to get you one more step toward freeing yourself of your credit card debt.

Posted by Jamie Larkin, Mortgage Advisor on August 18th, 2011 9:15 AMPost a Comment (0)

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