With the average person holding balances on 13 different credit cards and $22,100 in debt, it is quite likely that you too have credit card debt. You will probably agree that such an amount of debt is not exactly enjoyable as it adds stress to our personal finances as well as our relationships.
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 expenditures: If you spend more than what you earn, try to recognize the problem. This habit normally takes form when you make unnecessary purchases that exceed your budget, thus damaging your personal finances. However, if you control your expenses by limiting spending on luxury items (such as movie nights, dining) you will surely help your credit card debt. If you can curtail your spending, you may even have enough money left to start repaying the credit card debt. Ultimately, this is what you 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 Medial Expenses: When someone you care about is ill and requires prolonged medical attention, paying the medical bills with a credit is both convenient and often our only method of payment. Often, however, the treatment and/or prolonged hospital stays push our credit to the limit or beyond. This is where additional credit cards come in handy. If we are not excessively careful during such emotionally difficult times, we will rack up our balances rather quickly. Ultimately, we may find ourselves unable to make the minimum payments on our credit card debt, which will not only impact our overall financial health but our credit score as well. For this reason, medical expenses are one of the most popular reasons why people file for bankruptcy.
4. Unplanned loss of income over an extended period of time: Most people who lose their job often resort to available credit on a credit card in order to sustain their lifestyle. While certainly understandable, what many people who run into trouble do is not cut back on their discretionary expenses. Combine this with a lack of income, and the credit card debt escalates so quickly that it is often in bankruptcy court that we realize just how quickly such spending got out of control. And a bankruptcy, while alleviating some of the credit collection calls, will hinder us further, particularly when competing for scarce job openings.
When dealing with credit card debt, our best option is to reduce our expenses. This could mean leading a simpler life, it could mean forgoing some luxury items, or a combination of many other options (but it does not mean sacrificing life altogether!). Turning our high-rate credit card debt into a top budgeting priority not only helps us eliminate or reduce steep interest payments, but it will allow us to prepare better by establishing a solid savings base.