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For some people, credit cards are nothing more than opportunities to build credit. For others, they are tempting debt holes that lead to nothing but trouble. If you fall into the second group, it's about time that you reduced your credit card debt and dependence. We have the tips to get you started.
In this article, we will look at simple ways to take control of your finances once again. Read on and see how you can get back on track.
Start Paying with Cash
One of the first ways to curtail credit card debt is to use cash for many of those monthly credit card purchases. That way you avoid accidentally amassing too much debt that you then have to carry over to the next month while paying high interest rates. In our study of why people use credit cards, we found out that much of the reasons had to do with perspective. By using cash instead of a card, you feel more connected to the money you spend. Therefor you are less likely to overspend when the time comes. Perhaps that emotional connection is what you need to control your debt development.
Categorize Your Spending
Reserve credit card buying for specific items, like rental cars when you travel or online purchases of items you really need. This will let you know when to use the card and when not to use the card. Set limits on how much you can put on your card each month, and actually abide by them. Once the card has been used up, put it away until you pay the balance off. This will keep you from getting overwhelmed by debt and depending on your card to make it through each month.
If you want a more advanced option, use an online credit card account and set your preferences to alert you when you are approaching your self-imposed credit line limit. You might even want to put a cap on your card so that your charge will be declined for anything over a certain amount of money. Credit card companies offer these programs to help people control their spending habits. You just have to take a moment to use them.
Clean up Your Debt
start paying down your outstanding balances, even if that means applying an extra $10 or $20 per month. If you are paying 5% of the balance each month, it can take 10 years to get it all paid off. By simply increasing that payment to 20%, you can potentially pay it off in just 2-3 years. This may take a little re-budgeting, but once you get out of debt, you will feel much more accomplished. Just don't use this as an opportunity to build up more debt for the future.
Watch for Traps
Avoid debt traps, like teaser introductory rates, high-cost rewards programs, and free offers with long-term contracts. Those will always get you into trouble. You need to look beyond the first six months to a year that you'll have a card and see if it will really work for your life. Compare credit cards based on their overall rates and terms, and get the one that will lead you to the best situation possible. If you have a chance to transfer your balance to a card with a much lower permanent APR, then do so. Just be sure you keep up with your monthly payments on the new card to avoid triggering a higher rate plus fees and penalties.
Secure Your Finances
If you are really in a credit card bind and lack discipline needed to avoid running up monthly charges, consider getting a secured credit card. This is a card that you put money onto to create your initial line of credit. It's not like a prepaid card where you make deposits, spend money, and then make new deposits. You load money one time and then use it just like a credit card. With a secured card you are not allowed to charge more than you can support with a prepaid cash deposit, so that will force you to stick to a budget. One great example is the First Progress Platinum Prestige MasterCard® Secured Credit Card, which offers a low 11.99% APR with a $44 annual fee. Deposit up to $2,000 on the card, and you can use this while you pay off your other unsecured cards.
Follow the tips above, and you'll be independent of your credit cards in no time.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.