The average American carries balances of $22,100 on 13 different credit cards. If you are like the rest of us, then you also carry credit card debt and it is no fun! As you know, such debt has a tremendous impact on our personal finances, even though the circumstances that led us to this stage are often outside of our control.
Debt such as this may have resulted from impulsive spending, personal expenses, medical costs, and other unplanned emergencies. Regardless, our credit card debt needs to be dealt with effectively as such debt affects our budgeting and personal relationships, whether we realize it or not. Once we understand what caused such debt, we will be able to recognize the signs before they lead us into deeper trouble.
1. Unnecessary spending: When we buy on credit, we are often spending more than we earn. We need to recognize this behavior as problematic. The good news is that it is easy to spot: whenever we make an unnecessary purchase that exceeds our budget, we are usually paying with our credit card. The other good news is that we can control this type of spending by limiting luxury item purchases, including entertainment spending. If we can curb such spending, the money we save can be directed at repaying our credit card debt, and this is exactly what we want.
2. Large unexpected expenses: In instances where our credit card debt grew fast and furious, it is probable that we experienced a series of huge expenses. The big offender? Car and home repairs. And as soon as one repair was completed, another repair popped up. Even though we probably had the intention of repaying such expenses as quickly as possible, we often became complacent with the balances and paying the small "minimum" payment. Now, carrying larger balances we must repay the debt. The simplest way to do so without sacrificing all of our lifestyle is to curtail discretionary spending. The money we save can easily be channeled into repaying our credit card debt.
3. Prolonged Medical emergencies: If an important member in the family falls ill and is prone to prolonged illness, our credit cards often prove to be the most convenient way to pay off the hospital expenses. Often the bills for prolonged treatment or hospital stays might exceed one credit card's total limit, leaving us having to resort to one or two more cards. If we are not careful, we could rack up enough debt that we will find ourselves insolvent at the end of any given month. Note: medical bills are proven to be the primary reason for crippling our personal finances and damaging our credit score. As such, medical expenses are often cited as some of the highest balances owing in bankruptcy filings.
4. Unplanned loss of income for an extended period of time: Losing our job is never fun, particularly these days. In order to continue feeing our family and maintaining the household, it is common for people to resort to available credit card limits. While this is understandable, we must also do our very best to curtail our lifestyle during such times (research suggests that we do not, however). Eventually, our credit card debt climbs to the point where our lack of income combined with higher minimum payments lead us to a trustee's office. While unemployed, credit card debt can quickly spiral out of control. If bankruptcy becomes our only option, then finding a job will become even more difficult (since most employers obtain a credit history before extending job offers), particularly in a competitive job market.
Our best option when it comes to dealing with credit card debt is includes reducing expenses by leading a simpler life (note: this does not mean sacrificing life altogether). By making high-rate credit card debt a priority in our budgeting plans, we will not only eliminate steep credit card interest expenses, but can better prepare ourselves for future financial goals and expenses which often require disciplined savings.
Debt such as this may have resulted from impulsive spending, personal expenses, medical costs, and other unplanned emergencies. Regardless, our credit card debt needs to be dealt with effectively as such debt affects our budgeting and personal relationships, whether we realize it or not. Once we understand what caused such debt, we will be able to recognize the signs before they lead us into deeper trouble.
1. Unnecessary spending: When we buy on credit, we are often spending more than we earn. We need to recognize this behavior as problematic. The good news is that it is easy to spot: whenever we make an unnecessary purchase that exceeds our budget, we are usually paying with our credit card. The other good news is that we can control this type of spending by limiting luxury item purchases, including entertainment spending. If we can curb such spending, the money we save can be directed at repaying our credit card debt, and this is exactly what we want.
2. Large unexpected expenses: In instances where our credit card debt grew fast and furious, it is probable that we experienced a series of huge expenses. The big offender? Car and home repairs. And as soon as one repair was completed, another repair popped up. Even though we probably had the intention of repaying such expenses as quickly as possible, we often became complacent with the balances and paying the small "minimum" payment. Now, carrying larger balances we must repay the debt. The simplest way to do so without sacrificing all of our lifestyle is to curtail discretionary spending. The money we save can easily be channeled into repaying our credit card debt.
3. Prolonged Medical emergencies: If an important member in the family falls ill and is prone to prolonged illness, our credit cards often prove to be the most convenient way to pay off the hospital expenses. Often the bills for prolonged treatment or hospital stays might exceed one credit card's total limit, leaving us having to resort to one or two more cards. If we are not careful, we could rack up enough debt that we will find ourselves insolvent at the end of any given month. Note: medical bills are proven to be the primary reason for crippling our personal finances and damaging our credit score. As such, medical expenses are often cited as some of the highest balances owing in bankruptcy filings.
4. Unplanned loss of income for an extended period of time: Losing our job is never fun, particularly these days. In order to continue feeing our family and maintaining the household, it is common for people to resort to available credit card limits. While this is understandable, we must also do our very best to curtail our lifestyle during such times (research suggests that we do not, however). Eventually, our credit card debt climbs to the point where our lack of income combined with higher minimum payments lead us to a trustee's office. While unemployed, credit card debt can quickly spiral out of control. If bankruptcy becomes our only option, then finding a job will become even more difficult (since most employers obtain a credit history before extending job offers), particularly in a competitive job market.
Our best option when it comes to dealing with credit card debt is includes reducing expenses by leading a simpler life (note: this does not mean sacrificing life altogether). By making high-rate credit card debt a priority in our budgeting plans, we will not only eliminate steep credit card interest expenses, but can better prepare ourselves for future financial goals and expenses which often require disciplined savings.
About the Author:
Chris Blanchet is the author the Personal Finance Textbook Help Fix My Finances, which is also the basis for the Personal Finance Program of the same name. You can visit his blog at How To Repay Debt.com for more tips and advice on how to repay debt.
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