A Clever Guide to Managing Credit Card Debt

Managing credit card debt means obtaining and maintaining control of your credit cards and the amount of purchasing you do with them each month. If your balances are out of control or you own a plethora of cards, it’s time to cut back and cut down.

Manageable Level

The first step in managing your credit card debt involves getting a solid handle on your existing debt. This means trimming the number of cards in your wallet and cutting the balances. Pick your favorite two or three credit cards and cut the rest in half. Pay off and close the accounts you no longer plan to use.

This accomplishes two things. It lowers your debt to income ratio, which improves your credit score, and it decreases the number of credit card accounts you have to manage.

Next, focus on paying down (or paying off) your remaining balances. Credit card accounts remain open even if the cards have a zero balance. By paying down or paying off your remaining credit cards, you are limiting the amount of interest you pay each month, and lower interest fees means more money in your pocket.

One Purchase

Many people think that managing this type of debt means paying off their credit card balances at the end of each month. This works well if you have the money available to pay off the card. Most people overspend during the month and cannot pay off their entire credit card balances. This leaves them with balances due for the next month and potentially many more months. This is how credit card companies make their money. They are betting that their account holders cannot pay off their high balances before the interest charges are applied to the account.

Instead of focusing on paying off your credit cards before the end of each month, only make one purchase per credit card, and do not purchase anything else with the credit cards until their balances are zero.

For Example:

managing credit card debt

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You purchased $80 worth of groceries last week because you were short on cash in your checking account. At the end of the month, you only have $30 to put towards the $80 balance, leaving you with a balance of $50. Do not add another purchase to that $50. Instead, focus on paying off the balance. At $30 a month, the balance will be eliminated in three months.

By only making one purchase per payoff, you are not exponentially increasing your debt. You are also forcing yourself to consciously make the purchase. If you can only make one purchase per payoff, you’ll be less likely to use that purchase for frivolous items. This is very effective at managing the debt if you stick to the plan.

Treat Your Card Like Cash

Managing your debt means treating your credit cards like the cash in your bank account. People tend to treat their credit cards like free money. Credit cards are not free money. For each dollar spent, credit card holders are charged between .18 and .32 cents. Credit cards are extremely high interest loans and should be treated as such.

For Example: 

If you walk into a store to buy two new outfits for work, don’t buy five new outfits for work. Only charge amounts on your credit card that you would be willing to pay in cash. This prevents the temptation to overspend on every credit card purchase.

By limiting your credit cards, reducing the balances, paying off your credit before your next purchase and treating your credit cards like the cash in your bank account, you will be successfully managing your credit card debt. You will be limiting the number of purchases you make with your credit cards and paying off the balances within a reasonable timeframe.  Paying off your bill entirely every month is the most effective method of managing credit card debt.