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How To Avoid The Credit Card Trap

November 25, 2020 By editor

A lot of us have fallen down the credit card trap. After all, this is one of the most preferred payment methods by consumers. You can’t really blame them for thinking that way. Using credit cards will give you another level of security. Some offer a warranty if you use a credit card to pay. Others have rewards that you can really benefit from.

While using a credit card may be convenient, it’s also very easy to abuse. It feels like an extension of your wallet. You think that since your name is on the card, you are spending your money. So you are more reckless when you use it. This is probably why the average balance of credit cards is almost $6,200. And this was at the beginning of 2020. Imagine how much that has already grown after the pandemic and recession?

Stop thinking that you are using your money when you use your credit cards. This mentality is what makes most of us fall down the credit card trap. The truth is, you are spending the creditor’s money. Whatever amount you charge to your card will be paid back – with interest. So if you think about it, the convenience brought about by credit cards comes with a price – the high-interest rate.

This does not mean you should stop using your credit cards. No. It does come with benefits. Like the rewards program that can help you save money and get freebies. You don’t have to miss out on these. You just have to learn how to avoid the credit card trap.

Tips to avoid the credit card trap

According to one survey, almost 8 out of 10 credit cardholders are worried that they won’t be able to meet payments. The combined effects of the pandemic and the recession have taken a toll on the finances of the average American. Even if you had enough emergency funds, that would have been severely depleted by now. Especially if you were one of those who lost their job or business. Although the government tried to help save the economy and every household through the stimulus package, it’s not enough.

This is why a lot of consumers started to rely on their cards. That can easily push people into a credit card trap. What can you do if you don’t have a choice? Here are tips that will help you use your cards properly.

Budget your credit card use

Start by making sure that you align your credit spending with your budget plan. Take a look at your current financial position and see what you can really afford to spend. You need to be realistic about this. That means you have to scrutinize what you’re spending on a monthly basis. Find out what you can do to lower your expenses so you don’t have to rely on your credit cards.

But in case you do have to rely on it, make sure that you include your credit card spending each month in your budget plan. That way, you can determine the fund that you will set aside to pay off the debt. Once the billing statement arrives, you have to use this fund to try and pay the balance in full.

Know your credit limit

It’s also important for you to keep an eye on your credit limit. Maxing out your credit card will lead to penalties and charges that will just make things worse. Not to mention the fact that once you reach that limit, your balance would be very high. It would be very hard to pay it back.

But this is not the credit limit that you should be watching out for. If you set a budget for your credit card spending each month, that’s the limit that you should avoid. It’s not the limit set by the credit card company. It’s the limit that your budget plan can afford.

Make sure every card has a purpose

It’s easier to be a smart credit user if you are monitoring one credit card. But what if you own more than one card? This is what a lot of Americans are facing. Most of us own more than one credit card. Why? Because we use it to get rewards from different stores and establishments.

While the cards may have been offered so you can enjoy a specific reward, check if you’re still able to benefit from that. A lot may have already happened since you first got the card. If it no longer serves a purpose, you might want to consider closing the cards that don’t have a purpose in your monthly expenses.

Be conscious of your credit utilization rate

Finally, you have to be conscious of how much you are spending on your credit cards. The moment you stop monitoring, you put yourself in danger of falling into a credit card trap. To be specific, you have to monitor the relationship between your balance and credit limit. Ideally, the limit that you should keep an eye out for is what your budget can afford. But even that should be measured based on the acceptable credit utilization rate – which is 30%. So if your combined credit limit is $10,000, your balance should never go beyond $3,000 across all your credit accounts.

How to get out of a credit card trap

What can you do if you are already in a credit card trap? Don’t worry, your situation is not hopeless. You can get out of debt. It will take some time and a steady commitment from you. But you have to persevere.

You see, getting out of this trap will take time. At the least, you need a couple of months to completely get out of debt. It will be longer if your balance is high. So make sure you approach this with dedication. That way, even if you are forced to make sacrifices, you won’t falter in your efforts to deal with your debt situation.

Fortunately, there are two things that will help you accomplish this goal.

Negotiate with creditors

Being in a credit card trap means you have accumulated a lot of debts. Do you have to pay it all back? Yes. ideally, you really have to pay everything back. At least, this is usually true for the principal amount that you borrowed. But you can negotiate with your creditors to lower the interest amount that you have to pay. If there were penalties or other fees invovled, you can also negotiate that they waive these. This will make your debt payments smaller.

If you can prove that you are in a financial crisis, you can even negotiate to have your actual balance reduced.

In case you’re not sure how to do this, that’s okay. There are rules during credit negotiation that will guide you in doing this task. And if you’re not confident in your ability to negotiate, there are also trustworthy debt experts that can help you out.

Change your spending habits

Paying off your debts is for nothing if you don’t deal with the real reason why you fell in a credit card trap. Your spending will have ot be scrutinized if you want to manage your debts properly. Make sure that your budget is updated and aligned with your current financial situation. Include in your budget plan some of your financial goals – like paying off your debts, saving more, etc. These will help you fund these goals so you can reach it.

When your finances are tied up to your funds, you’ll be more cautious of how you spend your money. It’ll make you think twice about spending on unnecessary things – because you know there are goals that you should be paying for instead.

Step-By-Step Guide To Managing Debt During A Financial Crisis

November 22, 2020 By editor

Managing debt is challenging. But if you’re doing it while you’re in the midst of a financial crisis, it becomes all the more difficult to commit to. Why? Because you have to deal with the limited financial resources caused by the crisis you are in.

Take a look at what happened in 2020. 12.9 million people lost their jobs and several businesses had to close. How can you expect these people to pay for their monthly needs – much less all their credit obligations?

It’s not unknown to us how the pandemic has caused a lot of problems for everyone. It did not just threaten the health of everyone. It also caused people to lose their source of income.

Although what happened can be considered a national emergency, it doesn’t exempt anyone from paying off their debts. You are still required to meet your payments. The government will work out something with the creditors and lenders to give consumers reprieve – but this won’t be forever. So if you really want to pay off debt, you have to get serious about managing debt regardless if you’re going through a crisis.

Managing debt properly despite a financial crisis

Debt, in general, is hard. Paying it off will be challenging simply because you’ll go through a lot of temptation to use your money to pay for something else. There’s always something that seems more important than your debt payments. It could be an emergency situation. Or if you lost your job, you won’t think twice about using your debt payments to buy your family some food.

Some of these reasons are not really bad. But the fact remains that your debt payments will not always be guaranteed. That’s because we don’t know what will happen in the future.

Of course, that doesn’t mean you can’t exert more effort to ensure your debt payments. There are things that you can do to help in managing debts – no matter what situation you are currently in.

Know your debts

The average American has $51,900 worth of debts. If you want to be good at managing your debts, you have to be aware of this amount. But beyond that, you should also know the different types of debt that you owe money to. A lot of us have credit card debts, mortgages, car loans, personal loans, medical debts, etc.

Part of managing debt is the knowledge of how much you really owe and where you owe it from. You can’t really manage something unless you know everything there is to it. Having incomplete information will only give you a partial idea of what you should be managing. It will lead you to miss out on something important. And it can also cause you to make the wrong decisions about your debt situation. So if you really want to manage your debts properly, make sure you have a complete understanding of what you owe. That way, you can align it with your budget.

Take control of your expenses

Now that the word budget is mentioned, it’s time to look at your expenses. Part of managing debt is to make sure your expenses are under control. That way, it won’t compromise your monthly debt payments.

In case your source of income is compromised, you can also look at your expenses to check how you can lower it. Maybe there are expenses that you can stop spending on. What you save can be put towards your debt payments so you can continue paying it off.

Create a debt repayment plan

Having a debt repayment plan makes things a lot easier. This will guide you as you try to completely pay off what you owe. This specific repayment plan usually involves a payment technique that will suit your current financial situation. Like if you are in the midst of a crisis because you lost your job, you probably need a debt reduction. Especially if you’re not sure when you can find a new job.

But if you know that your situation will only be for a short while, then maybe a debt consolidation plan is all you need. Then again, if you want to get the help of a professional, it’s best to opt for credit counseling or debt management.

Make sure you take your time choosing the right repayment plan. That way, you can adjust your efforts in managing debt to suit the strategy you’ll use to achieve debt freedom.

Avoid adding to your balance

If you want to survive the financial crisis that you’re in, make sure that you get better at avoiding debt. At least, the unnecessary ones. There are debts that you can use to improve your financial situation. Like a mortgage or student loans. But there are debts that will only make things worse. Like if you use your credit card to buy things you don’t need and you don’t pay the balance in full. That can quickly turn into a huge problem.

Being in the middle of a financial crisis means your funds are limited. It will be hard to keep paying for all your monthly needs while paying off your debts. So to make sure you won’t make things worse, stop adding more to your debts – at least until you have paid it all off or a significant amount of what you originally owe.

Strengthen your emergency fund

Managing debt means you have to consider the future as well. You have to be prepared with an emergency fund that can get you out of tough situations without using debt.

You see, a lot of people got into a tough debt situation because they weren’t prepared for unexpected expenses. Things like an immediate car repair, a trip to the ER, or broken heating or cooling system. If you are not prepared for this, you’ll be forced to use your credit card to pay for the expense. If you can’t pay it in full, you’ll end up paying the finance charge along with what you owe. You’ll be wasting money paying the interest when you could have avoided it.

By having enough emergency funds, you can avoid relying on debt to pay for unexpected situations.

Lessons you’ll get after managing debt

Managing debt will not just help you pay off what you owe. It will also bring a lot of important benefits. Like helping you learn good financial habits. Paying off your debts over a couple of months or years would mean you have to set aside some money consistently. This habit will make it easier for you to save more money in the future.

But apart from that, there are other lessons for you to enjoy.

Learning from your mistake

Since paying off debt is tough, you’ll definitely realize how much of a mistake it can be to let debt accumulate. Although there are positive uses to it, being irresponsible with its use will only compromise your current finances.

When you are forced to sacrifice some expenses so you can meet your credit obligations, you’ll realize this is something that you should try to avoid in the future.

Learning to use credit properly

Since debt has the ability to compromise your finances, you should be careful whenever you decide to use debt. You can still use your credit cards. It can be convenient and it also provides a certain level of protection. But if you have to use debt, make sure you learn how to use it properly. This is how you can avoid compromising your financial situation.

3 Good Financial Habits You’ll Learn While Paying Off Debt

November 19, 2020 By editor

Did you know that you’ll get good financial habits while you are trying to pay off your debts? That’s another way to motivate yourself to completely pay all your credit obligations. It will not just lead you to financial freedom. Paying your debts diligently and with complete discipline will help you practice the habits that will ensure that you won’t put yourself in another debt situation.

You see, it’s very hard for us to eliminate debt from our lives. Our consumerist society makes it harder to do this. To boost consumer spending, they’ve made it very easy and tempting to keep using our credit cards. They’ve also lowered the interest rate on mortgage loans so people will use it to buy a home.

There are so many ways that the financial sector makes it easy to stay in debt. This is why you have to make sure that you’re aware of how to use debt properly. That way, even if you keep using credit, it won’t be a threat to your finances.

This is where good financial habits come into play. You need to learn the right habits that will remind you to use debt properly.

Good financial habits you’ll learn as you pay your debts

Fortunately, there are habits that you can learn while you pay off your debts. You’ll need to implement these if you want to successfully meet all your credit obligations. These will ensure that you can meet monthly payments and you will not encounter issues that might compromise your debt solution.

So what are the good financial habits you can learn as you diligently pay your debts?

Consistent effort to set aside money

Some people are natural savers. In one survey, it is revealed that 6 out of 10 survey respondents admitted they consider themselves as “savers.”

If you’re not one of them, that’s okay. If you continue paying off your credit obligations, you’ll soon get used to setting aside money. There’s nothing like a financial problem that will make a saver out of you. Besides, the fact that you are forced to pay for your debts means you’ll have no choice but to set aside money.

The longer it takes for you to pay off your debts, the more you’ll get used to the idea of putting aside money. This is a saving habit that will help you rebuild your finances and strengthen it after you’ve paid off your debts.

Focus on a financial goal

This is another one of the good financial habits that you will develop during the debt relief process. Having financial goals is always a good thing. It will give your life direction. Every decision you‘ll make will be done with a purpose. You’ll be guided by the need to reach your financial goal. You’ll be less likely to be irresponsible with your spending – because you know there are better options to use your hard-earned money.

You also have to remember that paying off your debt is another type of financial goal that you can aim for. Thinking of it as such should help you focus on every payment. There’s a challenge to reach that goal. And once you’ve reached it, you’ll feel fulfilled. The feeling of accomplishment will make you feel good. When that happens, you’ll be motivated to reach more financial goals. You’ll want to experience the same emotional high. So you’ll keep setting these goals that will improve your life.

Make the right financial decisions

This is one of the good financial habits that you’ll benefit from. Even long after you’ve finished paying off your debts, you can use this habit to improve your finances. Making the right financial decisions will keep you from making mistakes and landing in another debt situation. You’ll also learn how to become a smart consumer. This is not just about spending less. It’s more of knowing what your priorities are. It’s also about making sure you get the best value for your money.

If you can make the right financial decision every time, you’ll be able to make your future more secure. That way, you can live without feeling stressed about surviving any crisis that may come your way.

Why good financial habits will improve your life

If you are one of the 50% of Americans who said their financial situation is getting worse, you need to learn more good financial habits as soon as possible. You see, it’s not the amount of money that you earn that’ll make you successful in life. It’s how you choose to spend it. And the way you spend your finances will rely on the habits that you have.

Here are some of the benefits that you’ll gain if you have the right financial habits.

Helps you avoid debt problems

Let’s start with debt. When you have good financial habits, you can manage your debts with more confidence. You’ll feel more secure about using it – because you know that you can control yourself. There’s a lot of benefits to gain if you know how to use credit to your advantage. But you need the right habits to be ingrained in you so you do not abuse the use of debt. Once you abuse it, you’ll go through a setback that might discourage you. So make sure you avoid it in the first place.

Prepares you for a crisis

This has been mentioned earlier in the article. You can survive a crisis if you have the right habits in your life. There’s no denying that the next crisis is waiting around the corner. As they say, it’s not a matter of if, but when. That means you have to make sure that you are prepared to face any crisis that you’ll encounter. It could be another recession or a job loss or a medical emergency. Whatever it is, good financial habits will allow you to go through it and survive until the end. You’ll have losses, but you can recover once it’s over. Even if you have to start from scratch, the habits you have developed while paying off your debts will give you what you need to start over.

Makes financial freedom easier

Finally, the financial habits that you will use in your life will help you achieve financial freedom. What does this mean? It means you don’t have to work hard to have the money you need to feed your family. It also means you are not one emergency away from bankruptcy. You are working because you want to – not because you have bills to pay.

Having good financial habits will give you insight to strengthen and secure your financial position. It will help you spot opportunities that you can use. That way, you’ll have enough resources to start living the life that you have always wanted.

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