Debt is caused by many factors and behaviors, but we focus primarily on the combination of excessive spending and high interest rates. If you constantly delay your payments and create an accumulation of interest while your expenses stay the same or increase, you will find yourself in debt. When the minimum payments are made and a lot of the money is transferred to the next months, you have to pay interest on the total amount you have borrowed each month. Remember that you have to pay extra to borrow money from the bank. If you have not been able to pay your entire bill last month, how is this month different? If you can not afford to pay the entire balance and pay only the minimum amount, it will increase to such an extent that you will never be able to repay it. In the end, people have credit card debt because they spend more than they can afford.
What effect does credit card debt have on your financial life?
Being in debt on credit card puts your financial life at risk because you owe money that you do not have at the bank. This is stressful and can have a huge impact on your life as it impacts your daily life. Not only do you owe money, but you spend money every day and increase that amount every day. You must seriously change your financial life and reduce your expenses. You simply can not afford to buy what you buy. In addition, when you are in debt, all your discretionary income will be allocated to interest, so you will not even be able to enjoy what your money can actually buy. You have to give up your pocket money to pay interest.
Remember that excessive debt also lowers your credit rating, losing your creditworthiness and preventing you from borrowing money. Then interest rates will be higher than usual. Finally, being in debt with a credit card also means putting a brake on your social life. Even if you should be in an intensive savings mode, you can not afford to go out for a drink, go shopping or eat out.
How to get out of a credit card debt
- Consolidate all your debts into one loan at a lower interest rate
- Stop using your credit card
- Reduce your expenses
- Arrange to pay a certain amount every month and stick to it
- Follow a budget
- Make sure you do not delay or omit payments and pay the full amount
- Consider a second job
How to prevent you from recreating a credit card debt
To prevent you from recovering your credit card debts, you must be extremely strict and disciplined with yourself. Knowing that you tend to get into debt, you must be careful with every purchase you make. Always ask yourself if you need the article or just want it. Reducing your expenses is important, but you must also remember to be smart with your credit card payments. Do not fall behind in the minimum amounts. Try to get a low interest credit card if your current card is excessive and stick to a budget. Be frugal, smart and even economical.
Credit Card Definitions
- Monthly balance: The monthly balance of your credit card is the amount you owe at the end of the month. This includes how much money you put on your credit card bill (current outstanding balance plus interest charges from previous months).
- Minimum Payment: This is the minimum amount you must pay to your creditors every month and is a percentage of the outstanding amount. Paying only the minimum can significantly increase the time required to pay your credit cards.
- APR Interest Rate: This is the annual interest rate used by banks and creditors to charge people who borrow money. This rate is applied annually and is expressed as a percentage of the cost of funds.
- Balance Transfer: A credit card balance transfer includes the transfer of a credit card’s debt balance. This usually happens when customers want to transfer their current debt to another credit card with a lower interest rate and better benefits.
- Cash Advance: This is a common term for a short-term loan from a bank or other lender. This service allows credit card holders to withdraw a predetermined amount of money at a higher interest rate.
- Billing cycle: This is the time between monthly bills, such as when you receive your credit card bill.
- Secured Credit Card: This is a type of credit card that is secured by a sum of money that would be used as collateral if it can not continue to make your payments.