Debt Management Tip: You Must Give Credit Where Credit Is Due

It’s wise to ‘never spend your money before you have it,’ as Thomas Jefferson said.

Unfortunately, these days many people regard credit cards as a necessity, not a luxury.

The fact is, most people misuse credit cards and use them to fund impulse purchases and items which are not in any way a necessity. Then when times are tight, and the debtor makes a late payment, credit card interest rates shoot sky-high.

And 18 percent more people are making late credit card payments in the first quarter of 2009 then they were in the same quarter one year ago, according to recent estimates.

This plays havoc with one’s credit score, makes all borrowing more expensive, and can make it impossible to buy homes or cars.

The first step to saving money is to pay off outstanding loans and credit card debt as quickly as possible. It only makes sense to use a credit card if you are the kind of person who pays it off every month in full. Otherwise they hit you with credit card fees that average around 18 percent a month.

If you pay it off even a day late they can hike up your interest rate astronomically, to 28 percent a month or more. And the late payment will affect your credit ratings, which means that other cards which are being paid off on time often will have the legal right to also raise your interest rates.

If you borrow $1,000 and only pay the minimum every month (let’s say the minimum required payment is 2.5 percent of your balance and you only pay that) it will end up taking you 153 months to be rid of your debt and you will pay $1,115.41 in interest – IF you always pay on time and are never hit with late fees.

The smart plan is to pay off your credit card bill in full every month.

If you are deep in credit card debt, pay MORE than the minimum every month, even if you have to take a second job to do so.

Always pay on time so you do not ruin your credit, drive up your interest rate, and get hit with late fees.

If push comes to shove, sell valuable possessions to pay off your debt.

Put the highest payment towards the credit card with the highest interest rate first. Once that has been paid down significantly and once you have been making all of your payments on time for a few months, you can call your credit card companies to try to negotiate a lower interest rate, but it may take six months or more of on-time payments before they will agree.

Your goal is to completely pay off your credit cards, and to get to the point where you are only charging what you are SURE that you can afford to pay off every month.

Otherwise, you are living and working to support the credit card companies, and you are spending your money to better their future, not yours.