Zero Out Those Balances on Your Credit Cards
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by: barrywaters
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Word Count: 747
Credit cards are a necessity for most people in this country. Consumers use them to pay for everything from gas and tuition to groceries and train tickets. Many consumers use credit cards in lieu of paying cash or by check. Credit cards are a convenient alternative to carrying cash. Some consumers, however, frequently use credit cards to purchase things for which they do not have the money. It used to be that consumers would save to make a big purchase like jewelry, a new couch or a new television. Given the trend of easy credit this last decade, many people buy things with their credit cards before they have the money in the bank for them. They will then only make the minimum payment when the billing cycle ends. The bulk of the minimum payment is dedicated to paying interest on the balance on that card. That means that the banks make more and more money and those consumers pay down less of their debt. According to a study conducted by Experian in 2007, one in six families with credit cards only makes the minimum payment each month.
The lure of overspending with a credit card is quite bewitching. But, to keep bills and spending habits in check, it is wiser to view credit cards as if they were checks. Before you write a check, you always assure you have enough money in the bank to clear it. For everyday purchases on credit cards, the philosophy should be the same. Do not purchase something that is not absolutely necessary, unless you think you can pay it off in a timely manner. Emergency expenditures on your credit cards are a different story. But if you keep your regular everyday spending in check, you will have more wiggle room for emergency expenditures that you may have to pay off over time.
If you owe a significant amount on your credit cards and would like to start paying down that debt, the first step is to stop paying for things that increase your balance. The second step is to pay more than the minimum balance whenever possible. Again, when you only pay the minimum payment, the majority of that payment is interest to the bank. The more money you pay them in interest, the less money you have available to pay off that balance. And the sooner you pay off that balance, the less interest you pay in the long run. If you have several credit cards, look into consolidating the balances onto the card with the lowest interest rate. You should look into "snowballing" your debt, if you have hit the maximum on the lowest interest card. You focus on the credit card that has the lowest balance and pay it off first (while making sure you pay the minimum payments on your other cards), regardless of which one has the highest interest rate. Do not reduce the amount of your payment each month, even as that balance becomes smaller and smaller. After that credit card is paid off, focus on the credit card with the next lowest balance. Maintain the same payments as you made on the first card. The new amount for the payments on the next card should be the same as what you were paying down on the last card, plus the minimum payment from the last card. This will allow you to pay off more and more of the balance as you move forward, hence the term "snowball." During your snowball, it is wise to evaluate the rates of your cards and consolidate the balances to the card with the lowest interest rate when you can. Doing so will free up even more money to pay down your debt, that you might have otherwise been paying in interest.
Snowballing offers a simple and routine way to make regular payments on your overall credit card debt, which will slowly become less and less as you make more payments. Psychologically, it helps you focus on something tangible that will let you see results faster than if you try to tackle the balance on all your credit cards at once. While you are getting your snowball rolling, try not to charge any new things to your credit cards. If you do, you will have to take some discouraging steps backward, which might unravel your snowball.
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Find more info about credit cards, stop in at www.getsmart.com/credit-cards.
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