Why is the majority of individuals living beyond their means? We all have debt, this is the way society works, but why is it that our credit accounts, are about the same as what we can afford, or exceeds what we can afford?
It is fiarly straight forward. This is what the credit card companies allow, this is the ideal siuation for them and this is how they make all their money. The worst part is that they don’t care if we end up behind in payments.
We all like to get paid on time, but your debtors actually want the opposite. They want you to be tardy!
Now keep in mind they don’t hope for you to be too delinquent or to completely miss payments, but a bit late is just ideal. Let’s just think what a late account does for them. You are still paying, but you are a bit late. Their late fee is thirty dollars. They just increase thier revenue thirty dollars for doing no additional work. You are already maxed out, so this late fee puts you beyond your credit limit. This gained them another $30 for, again, doing absolutely nothing.
You can now make your minimum payment of twenty dollars. The math will not work to your advantage. Let’s just pretend that you are charged fifteen dollars in interest for the billing period. Your total costs are; fifteen dollars in new charges + $30 late fee + thirty dollars for being over your limit totalling $75 charged to your account. You make a payment to them of $20, which leaves you $55 worse than when you started and you have absolutely zero to show for it.
This is why credit card debt is evil and we must learn to do without them!
The first step in this process is to gather up all of your credit cards and destroy them. You can save one or two, but get rid of the rest. Just pick the ones with the lowest interest rates and preferably no annual fee. Store your select few in a safe place that is not easily accessible.
This may seem extreme, but most people do not have the will power to simply not use the card. They look at their statement, see $50 or $100 dollars in available credit and look at it as free money. There is no such thing.
If you can’t bring yourself to cutting up your cards, at least gather them all up and store them somewhere that would take some effort to get to. A safe deposit box is always a good idea. You can also have someone that you trust hold on to them or hide them.
The key is to not have them accessible for those impulse purchases that we come across every day. Once we pass the moment, chances are that we will realize that we don’t need to make that purchase or probably forgot about it all together. We are now even closer to getting out of debt.
Don’t forget to cancel the cards that you are no longer going to use. Most credit cards have an annual fee, anywhere from $30 to $100. This is wasted money that you can use to apply towards the balance.
Some cards may charge you a closed account fee to persuade you to stay with them. At this time you need to analyze the impact. I recently cancelled a card that is charging me $3.50 a month in closed account fees. My annual fee is $59. 12 months at $3.50 is $42. I am still ahead of the game by $17, or more, if I pay it off within a year. The most important part is that there is no way that I can use that card again and worsen my situation.
Now that the temptation is out of the way you can start paying them off. Just remember to pay at least the minimum, pay all accounts on time, and stop using credit. Now step back and enjoy the road to financial freedom.
