Archive for August 21st, 2007

Paying Down Credit Card Debt - 5 Key Points

Credit card debt can be extremely uncomfortable - even downright painful. Long periods of heavy debt can put a strain on your relationships, make it difficult to qualify for low-interest loans, and keep you from attaining overall financial freedom. Fortunately, there are a number of no-nonsense, time-tested ways to conquer credit card debt. The following are 5 key points for eliminating your credit card debt and getting on the road to financial health.

Tip #1: Envision yourself each day as being debt-free: If you are like most people deep in debt, you have fallen into the vicious cycle of spending, on average, more than you earn each month. Hint: to be debt-free, you need to think like a debt-free person! The right mindset is essential for preparing yourself to automatically take the right daily actions to eliminate your credit card debt. It is important to condition your mind into thinking that debt is unsavory, ugly, and unattractive, while having money to invest means freedom and peace of mind. Exercise: each morning when you get up, each night before you go to bed, and at various points throughout the day, envision yourself as your life will be when you are fully debt-free. How does it feel? Now, hold onto that feeling the next time you are tempted by an unnecessary purchase.

Tip #2: Pay down high-interest credit cards first: Sign up for any low-fee balance transfer offers offered by credit card companies when doing so means moving your debt to a lower-interest card. Then, rank your various cards for which you carry a balance from higher interest to lower interest. Focusing on rigorously paying what you can each month toward your highest-interest cards first and pay only the minimum balance due on your other cards. Most experts agree that this is the fastest, smartest way to pay down your credit cards.

Tip #3: Prepare a monthly budget: Getting a handle on your monthly expenditures is absolutely essential. Exercise: make two lists for monthly expenditures: need-to-haves and nice-to-haves. Then, commit to prioritizing your spending each month in this order: 1. need-to-haves first (including paying minimum balances on lowest-interest credit cards!), 2. payments toward high-interest credit cards next, and 3. the occasional nice-to-have goodie for yourself as a reward for working so hard to pay down your debt.

Tip #4: Pay cash whenever possible: This sounds like a no-brainer, right? The fact is that many people who are heavily in credit card debt continue to use their cards each month to pay regular expenses. While using and then paying down your credit cards fully each month can be an advisable element in an overall strategy to improve your credit scores, for now it is best to stay away completely from charging anything onto your cards. Get into the habit of paying cash each month, as doing so will give you a better feel for the relationship between what you make and what you spend each month.

Tip #5: Stop using all but one credit card: Most people get into credit card debt by regularly using too many cards. Credit cards are not bad in and of themselves and having a large line of credit can help your credit score. But, credit card companies make most of their money off of us when we start charging more than we can pay off! So, put all of your credit cards away in a closet, except for one which you can use for dire emergencies.

Add comment August 21st, 2007

Consumers Should Not Be Ignorant When It Comes To Debt

Debt problems in Britain are being compounded by consumers who are underestimating their outstanding finances, according to new figures.

In contrast, secured loan borrowers were said to have a more accurate idea about their finances. The Mintel survey of mortgage holders showed that respondents believe they have some 92,200 outstanding. Meanwhile, figures from the Bank and various mortgage lenders state that the average amount owed is 95,000. As a result, the study suggested that Britons have a “much better handle” on their property-based debts.

Commenting on the study, senior finance analyst Toby Clark said: “While Brits do seem to have a good grasp of their mortgage borrowing, they are wildly underestimating the amount of money they owe on credit cards and loans. Clearly, it is a lot easier to keep an eye on a single mortgage, than it is to juggle a couple of credit cards, a personal loan, a car loan and maybe even an overdraft as well.” “There is a major need for financial education and for a drive to prompt borrowers to take a fresh look at their debts. Without a detailed understanding of exactly how much they owe and what rates they are paying, it is easy to see how the situation could spiral out of control,” Mr Clark added.

Research carried out by the firm indicates that those households on low incomes - those who earn less than 15,499 a year - are borrowing to help meet the cost of day-to-day expenses. A reported 11 per cent of such consumers were said to use credit to meet regular demands for payment on areas such as phone bills. Meanwhile, 29 and 11 per cent of low earning adults are said to use money they have borrowed to help raise their children and pay taxes. However, these proportions fell to 21 and six per cent for Britons judged to be wealthy with an annual salary of 50,000 or more.

The findings also revealed that well off families utilise credit to help supplement their assets. Just under two-thirds (63 per cent) borrow to help meet mortgage costs for their home, with 13 per cent using the money to fund the purchase of a second property. Also according to Mintel “paying for their children’s further education accounts for 9 per cent (one in ten) of well off consumers’ debts.

In figures released by Pricewaterhouse Coopers earlier this month, borrowers of all types were reported to be paying back more money servicing debts. From April to June this year, for every pound earned was being put towards making credit payments - this is the highest proportion of income being spent since 1990. Head of macroeconomics John Hawksworth claimed that more consumers are facing pressure on their finances as a result of increasing energy and petrol bill costs combined with only “modest” rises in annual earnings. Because of this, he claims that consumer spending will fall over the coming years as day-to-day finances are impacted upon by ‘debt obligations’.

Add comment August 21st, 2007

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