How to Manage Credit Card Debt

Part I – How to Manage Credit Card Debt

18 Nov , 2015  

The first thing you need to realize about credit cards are that they are—in actuality—closer to being “loan cards”. And in today’s world, one cannot live without at least one credit card. But I have one mantra for you: I am going to control my credit card debt and it will not control me.

Credit card debt concept

Let’s go over a few credit card do’s.

Do: Open your wallet and take stock of how many credit cards you currently have
Make a list of these and find out (and then take note of) how many you have used in the last six months. Then determine how many of these you have paid off in the last six months. What is the interest for each card?

Now, tell yourself that you are not going to pay any interest starting on . An interest of 18%-25%—and sometimes up to 30%—is really taking a toll on your financial in the short and long term. It’s practically a highway robbery!

Do: Make a game-plan
Come up with a plan of three months or of six months (or whatever length of time you choose), depending on how deep in s*** you are, to get out of credit card debt to become debt-free.

This means that you shouldn’t undo all of your good work a few months down the line by getting into another credit card debt situation though. You can’t be financially independent if you have to constantly be shelling out a chunk of every paycheck to pay interest on credit cards.

The only exception is paying mortgages on real estate investments, since there is at least some collateral in play. But let’s focus on credit cards for now.

Do: Buddy up
Find a friend who is also struggling with credit card debt. Have a competition to see who can pay off their debt first. This can remind you that you aren’t in it alone and can make you feel more accountable.

Check your credit card balance every week. Don’t wait until the end of the month to pay it off. Make it a habit to pay it off every two weeks on a specific day.  And be sure to compare your progress with your buddy!

Do: Show some restraint.
This can prove difficult, but NOT spending money on things that are not strictly necessary is an absolute must to overcoming your credit card debt.

Seriously, the money that you spend on lattes or shoes can be put to way better use by helping you alleviate your credit card debt, which will improve your life overall. You can do it. I know it!

Do: Figure out whether you need all of your current credit cards.
If you haven’t used a given card in longer than 6 months, shred it. You are probably being charged unnecessary annual fees. Your future borrowing amount will be impacted by any outstanding credit card debt you have, so do your best to minimize it by keeping as few credit cards in your stash as possible.

Remember: The banks should be trying to woo you, not the other way around!

Do: Know what to do in face of credit card emergencies.
Make a mental checklist of actions to take if your credit cards are ever lost or stolen. This way you will be more prepared if you ever are in this situation. Write down this plan and store it where you can grab it in case you need it one day.

Get away from credit card debt

Personally, I only have three credit cards, all of which I use strategically. I get points for three major airlines on these cards, so I utilize them in order to earn miles.

When the airline prices are high in the summer, I use the miles I have accumulated. When prices are lower, I use these cards to buy tickets to earn more miles.

I have traveled nearly two million miles and I would say that I didn’t have to pay for 10%+ of all airline tickets through this method. Again, I am controlling my credit cards and not vice versa.

Using a credit card is essentially taking loans out thorough a bank. This loan should be paid back and as soon as possible.  A credit card is a trap unless it is used wisely.

Funnily enough, I once had to fight to get a single credit card in my name.  When I first moved to NYC from Germany, I had to buy essentials for my family. Every time I went to make a purchase, I was asked for my credit card. I didn’t have one. I had always paid in cash or with a check, as credit cards were not a part of my world at the time.

I decided to apply for cards for my husband and myself. I soon learned that, if I wanted to make a large purchase, I would need to have excellent credit and, of course, a good credit score. To build up that good credit score, I needed to get a credit card.

I applied at the same bank where my husband and I routinely deposited our paychecks. My husband was approved immediately and soon was given his credit card. My experience, on the other hand, was a different story. The bank clerk told me that I couldn’t get a credit card on my name on it. Arguing with her was useless and her boss ignored my questions, so, fed up with the cavalier attitude I had received, I talked to the boss’ boss and asked him to examine the paycheck that my husband and I BOTH deposited at that bank. I insisted on having a credit card with my legal name as written on my passport.

Eventually, he got the point and gave a credit card with my legal name on it. I learned an important lesson from this encounter. Don’t accept a “No” if you don’t think your request warrants one. Try to turn this in to a “Yes” if it is something that matters to you.

This also taught me that fighting for something makes it matter more. I appreciated my credit card very much and made payments on the loan religiously (as I continue to do with all my credit cards to this day), which then allowed me to receive various perks from both merchants and banks.

That said, when I have to have a loan now, I get a special interest rate. If you have a credit score in the 800+ range in the US, you’re pretty much golden.

Because I have worked so hard on maintaining fantastic credit, I am now inundated with credit card offers—with my legal name, nonetheless. It’s funny that when you need something, people are unwilling to give it to you and when you don’t need it, you receive more offers than you could ever want or need.

Do you have problems with your credit? Do you not know how to NOT make a purchase? Keep an eye out for my next few blog posts, which will cover these topics.


Other Resources-

  1. Credit card tricks that will help you save money
  2. Things you should know about Credit Card Debt

 

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1 Response

  1. […] I pointed out in How to Manage Credit Card Debt: Part 1, having a credit card is often a double-edged sword and knowing how to use it in a strategic and […]

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