Mary King's eNews - How to Eliminate Credit Card Debt
Hello,
Recently a client asked me how she could get out of an on-going phase of sometimes using cash advances from one credit card to pay off another credit card. She was caught in a cycle that seemed never ending. She paid the minimum payment each month and when she was offered another credit card or an increase she took up the option.
Credit cards are convenient and easy to use. Paying off the full amount each month means you get the benefit of using other peoples money - with no cost to you. When you pay off the card fully each month you have the convenience of an itemized account and can collect award points.
When you pay off less than the full amount the money becomes very expensive. Do you know how charge cards work? They are designed to have a very small monthly payment so you will never pay it off. The average card takes 15 to 20 years to pay off if you only make the minimum payment.
By saving the interest you are paying out you could grow your wealth. When you keep paying interest on money you used to buy consumables your finances are being drained. The result will be a cycle you may have trouble getting out of. You are actually paying for your past. I think a better strategy is to invest in your future by saving your money. Then you can have your money work for you, rather than have you work for your money.
Unless you are getting a greater return on your investment (using your credit card) then your wealth is making the credit card provider rich.
Let me dispel the myth with regard to debt. Never, in any circumstance, is consumption debt good, NEVER!
If you have consumer debt on your credit card my advice is to eliminate your credit cards. You can cut up your credit cards to stop yourself from using them. Cut up all your cards and start to pay cash. If you have no cash find a way to survive without buying the item you believe you must have. I know people who have taken the challenge seriously, cut up their cards and spent only cash. (You may need to keep one card for car hire and hotel bookings.) I have two cards, a Diners Card and a fee free Visa card (to use when Diners is not acceptable). I pay off both cards each month. This is virtually the same as paying cash.
Here is the strategy for getting out of credit card debt.
Add up all the minimum balances due on each card. Then add 10%. If you have more than one credit card, pay the minimum required amount on all cards with the exception of the one with the smallest balance. Pay the extra 10% (of the total of all the minimum payments) off the card with the smallest balance on it. Pay it off regularly each month until it is gone. Then write to the bank and close the account. Next roll over the money you used to pay off the first card to the card with the next lowest balance and pay off that card and repeat till all cards are paid off. The further you go the quicker your debts are paid off.
Then save your money, adding to your savings every day till you have enough to invest. As you develop the habit of minimizing debt and regular saving you will be surprised at how quickly and how often big, small and micro business opportunities pop up in front of you. Many will not fit your current resources, but you will be surprised how these opportunities inspire you to becoming very creative about how to get into the game of investing. Start small and be willing to grow your money gradually.
A reminder that the next two-day workshop Rich is Better Wealth for Women will be held in Melbourne on 21st and 22nd April. You may book by going to the website www.maryking.com.au .
Best wishes for your financial freedom,
Mary King
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