Besides losing weight and vowing to quit smoking, getting your finances in shape ranks among the top resolutions for the New Year. Not so easy, especially in these trying economic times. But impossible? Not if you have a plan. Perhaps the most daunting task is getting your credit card use under control, so here are nine resolutions to help you do just that. (For related reading, also check out Everything You Need To Know About Credit Card Rates.)
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- Pay More Per Month
Naturally, the more you pay, the quicker your debt disappears. But it's easier said than done for most, especially those of us who are struggling to make ends meet (see all of the below tips). Say you have credit card debt of $10,000 and the card is carrying 17% interest. It could take about 44 years to pay off the debt if you send in the minimum due amount each month (2% of the balance in this example), with more than $23,000 interest accrued over that time, provided you don't incur any more debt. But consider this: by increasing your minimum payment to just 3% of the balance a month, you can save thousands (about $14,500) in interest fees and knock off the debt in less than half the time.
- Set Up a Payment Schedule
The holiday hustle and bustle is over, so there is no excuse to not be organized. Make time to put all your monthly expenses down on paper, or create a spreadsheet that allows a black-and-white view of what you owe and when payments are due. You get bonus points if you anticipate non-monthly expenses, such as quarterly property taxes, IRA contributions or seasonal services like landscaping or snow removal.
- Track Everything
Okay, your payment schedule is set. Now, stick to it. You can also help monitor your debt by comparing spending habits month-to-month or even to last year. You might be surprised to see how a little bit here and a little bit there adds up.
- Call to Have Your Interest Reduced
One of the quickest way to reduce debt is to lower your interest rate. Sometimes all it takes is a simple phone call. Even a point or two can mean significant savings in the long run, so it's worth a try, Remember: credit card companies don't want to lose your business. If they refuse, shop around.
- Transfer Balances to Reduce Interest
The credit card companies spend millions in direct mail or online advertising trying to woo new customers. Why not take them up on their offer? But transferring debt to a card with a lower or 0% introductory interest rate comes with its dangers, too. If you don't pay off the debt in the allotted time, say six months or even a year, higher interest rates may kick in and you're in the same sinking boat as before.
- Look at Your Credit Report
Get a full account of all credit cards on you name or in your spouse's name. Even canceled cards can still be on your credit report. Remember, you'll need to know exactly where you stand before you can make effective changes.
- Get Rid of Your Child's Credit Card
You thought you were doing your child a favor by offering him or her a credit card when it came time for college. But was it worth it? Maybe for books and other necessities but a credit card in the hands of anyone whose name is not on the bill is dangerous. If the debt is out of control, or the card was used for a lavish Spring break vacation or daily double-latte fix, take the card away. Even if reasonable debt was incurred, set up a payment plan that he or she must stick to – ask for a weekly allowance (hey, now it's your turn). Easier said than done, true. But hopefully, you've learned a valuable lesson.
- Cut Up All but One Card
Think about your daily routine: do you really need to carry a wallet full of credit cards, just in case? By eliminating the temptation, you can save yourself a bundle. (Learn more about consolidation in Debt Consolidation Made Easy.)
- Build Credit Using Credit Cards
We've discussed ways to get out of credit card debt. But maybe you're one of those folks who have no debt and are looking to build credit. You, too, will need to do some planning.
Establish a checking and savings account, preferably with a local bank where you can establish a professional relationship. This will be helpful down the line if you need to apply for a loan or mortgage. Then, apply for one credit card, either through the bank (most commercial banks offer them to new customers) or your credit union, if applicable, and use wisely.
Make sure to pay off the bill in full whenever possible. This will help your credit rating when it comes time to take out that bigger loan. Understand the factors that make up your credit score, like paying on time, credit limits, etc. (For more information, see The Dirty Secret About Your Credit Score.)
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The Bottom Line
Acknowledging that your credit debt is a mess is the first step in repairing the damage. But remember: it takes just as much willpower to ease your financial burden as it does to step away from that second piece of cheesecake. But think of the rewards!
For the latest financial news, see Water Cooler Finance: FBI Insider-TradingBust.