After paying off $20,000 credit card debt in 2020, Kathrine McNamara, an elementary school teacher in Washington State, decided not to give up their credit cards. She was able to pay her bills thanks to credit card debt consolidation. In the future, the woman planned to buy a house and a car; she hoped to maintain a positive credit history by leaving the cards open and active.
Katherine tried to maintain her loans to get more loyal interest rates on borrowed capital over the years.
Nowadays, many people refuse to utilize credit cards, worrying that the bank will take all their property. Actually, they can help your credit journey, but only when used responsibly. When reconciling with credit cards, you need to work out an individual plan to prevent significant debts. There are eight things you should know about credit card debt:
Analyze your spending habits
Maybe you have dealt with all the loans successfully after credit card consolidation, but the history can repeat itself if you do not figure out why the debt arose. Julia Kramer, a financial consultant from the company Signature Financial Planning in Pennsylvania State, USA, believes that a debt elimination plan, working in the short term, cannot be effective in a long time if it doesn't address your priorities.
Kramer recommends analyzing cash transactions made a week ago or more. Mark the purchases you plan to repeat with a plus sign, with a minus sign what you want to refuse. Put an equal symbol next to mandatory purchases. Indicate the date of purchase, the cost, and the needs satisfied. According to Julia, going out to a restaurant with friends can be more about the personal connection experience, not about the satisfaction they bring.
This data helps to identify budget items that can be the subject of discussion before you consolidate credit card debt. For instance, you can choose cheaper food to provide decent care for the skin of the face and body to meet the basic need for self-care.
If your expenses are caused by anxiety, develop a plan for such situations. You can allocate additional money in the budget or go for a trick; for example, use the credit card lock feature to prevent costs.
Use cash for optional expenses
If you want to control spending on entertainment or dining out, set aside cash so you don't spend more. Money on hand makes spending more rational.
Keep track of cash flow
Create your monitoring system. You can set up a notification about charges on a credit card if they exceed the specified amount. There are different spreadsheets and budget applications to track expenses. Kramer doesn't advise opening credit cards to people if they do not have a system to check all monthly fees, including credit card bill payments.
Katherine says that when she looks into the envelope with cash and sees the last 50 bucks there, she understands that this is the last money available and needs to be spent wisely.
Use credit cards only for scheduled expenses
Start your credit card interaction with small, planned purchases, such as a Netflix subscription or something else. Don't expect credit card debt forgiveness.
After liquidating her debts, Katherine uses credit cards only for purchases within the budget and tries to pay off all debts every month until interest is accrued. Initially, she left her credit card at home to avoid unnecessary charges.
Create an emergency fund that you can back on
Even if your reserve fund is only $500, it can save your credit card from new debt. Start with small amounts, and try to build a more comprehensive safety net over time. Funds should be enough to cover all living expenses for 3-6 months; it is better to keep them in high-yielding savings accounts.
If before you had to set aside a certain amount every month to pay off creditors, keep this trend, only now send funds to savings.
Do not store credit card data on all kinds of sites and applications
Comfortable payment options sometimes lead to mindless purchases. When you need to enter payment information in the form for the purchase, you have more time to understand whether you need this item.
Find a responsible soul mate
An unbiased partner or loved one you trust can contribute to the purchase or the creation of a debt repayment plan. A reporting partner can be the speaking trumpet that lets you hear your rationale for financial decisions.
Adjust your strategy from time to time
As motivation and priorities change, you should also adjust your financial plan. Continue to analyze credit card statements to determine needs met by purchases and what costs are essential. If you have accumulated debts after making a precise spending plan, it's worth considering closing credit cards, even if your credit score worsens after such a solution.
Katherine shares her experience and says that it is essential to understand your problems and find ways to solve them when it comes to using credit capital. She admits that things may look different in five years, but for now, it's an effective strategy how to break in with a credit card debt cycle.