Responsible Balances on Credit Cards
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by: barrywaters
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Word Count: 792
Credit cards are a necessity for most people in this country. Everything from toll booth fees to library charges are put on credit cards. Many consumers use credit cards in lieu of paying cash or by check. Credit cards offer a safe and handy substitute for paying with hard 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. Now that credit cards are so prevalent and easy to obtain, many consumers do not wait until they have the money to pay for big ticket items. They will then only make the minimum payment when the billing cycle ends. The bulk of the minimum payment is dedicated to paying interest on the balance on that card. 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. According to a study conducted by Experian in 2007, one in six families with credit cards only makes the minimum payment each month.
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. Before you write a check, you always assure you have enough money in the bank to clear it. You should take the same approach to your regular spending on your credit cards. Do not purchase something that is not absolutely necessary, unless you think you can pay it off in a timely manner. There are some cases in which credit cards are used for emergencies, like an unexpected car repair or a medical expense. If you have not overspent on unnecessary items and do not carry an unmanageable balance on your credit card as a habit, however, you will be more capable of handling emergency expenses and paying them off in a reasonable amount of 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. Again, when you only pay the minimum payment, the majority of that payment is interest to the bank. The more money you pay them in interest, the less money you have available to pay off that balance. And the sooner you pay off that balance, the less interest you pay in the long run. 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. You focus on the credit card that has the lowest balance and pay it off first (while making sure you pay the minimum payments on your other cards), regardless of which one has the highest interest rate. 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. Again, do not reduce the amount of each payment as the balance becomes lower. Add what you would be paying in minimum payments on the credit card you just paid off to the regular payments you were making, and apply that to the new credit 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. This will allow you to pay less on interest and more on your balance, making your snowball even bigger.
Snowballing offers a simple and routine way to make regular payments on your overall credit card debt, which will slowly become less and less as you make more payments. It lets you see solid results and gives you an opportunity to see the rewards of paying off debt on your credit cards each step of the way. While you are getting your snowball rolling, try not to charge any new things to your credit cards. If you do, you will have to take some discouraging steps backward, which might unravel your snowball.
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