If there’s one common fear that follows us from childhood into adulthood, it’s the “permanent record.” In school, your principal would keep a file of every good and bad grade you earned on your assignments. As an adult, your credit score follows you throughout your financial dealings.
Debts incurred from college, personal transportation, or housing are compounded when you fail to make payments on your credit cards. Credit cards may give you the freedom to buy stuff you can’t afford now, and pay it off later. But, there will come a time when you owe more than you’ve spent.
Fortunately, it’s never too late to dig yourself out of debt. Here are some tips on how you can get started.
Cash is King
You may have heard your grandparents say: “If you don’t have the money to buy something, don’t buy it!” They were speaking from a generation that where a person’s income was backed by hard capital. Your monthly credit card bill should be enough proof of that.
Make cash your first line of payment before switching to card. Setting aside cash to use for everyday expenses gives you a measurable amount that you can keep track of. Reserve plastic as a last resort when you need to cover expenses that your cash supply can’t cover. Just make sure it isn’t compensating for lack of paper.
Balance Transfers
One way credit card companies get you is through 0% balance transfers. At the first thought, it sounds like a good idea to take a $3,000 dollar debt from one card and transfer it to a brand new one. No interest to be paid, clean slate!
It goes without saying that maxing out a card you just paid off would be dumb. Transferring would only alleviate some of your debt, not all of it. There’s also a 3% to 5% fee owed for transferring the balance. This fee will increase your Annual Percentage Rate by .5%.
If you are going to transfer, make sure your credit score is good enough to get accepted.
One Debt at a Time
Even though we live in the age of multitasking, trying to pay off multiple debts at once may cause your head to explode.
Assuming you have more than one card that needs attention, start with the lowest balance you owe and work your way up the ladder. Try making the minimum monthly payments on two cards, if think you can multitask.
Consolidation Loans
Taking out a loan to payoff a credit card is a last resort. The ideal outcome would be paying off your cards in full, but you don’t want to fall into further debt.
Most consolidation loans work the same way as balance transfers. You might end up with a monthly payment with low interest and an overall lower amount than what you previously owed. However, secured loans like this will require collateral. Just keep up with regular payments or your lender could put your home up for sale in Dallas in the classifieds.
