Credit Matters

Every once in a while I get a question that throws me for a loop.  This was one of those time the question went something like this. 

I have a lot of credit card debt and I would like to pay it off.  Every payday I try and make extra payments so that I can pay down my credit cards but just as soon as have some available balance I go out and buy more with my credit card.

A friend of mine suggested that I have my employer take out extra tax money out check every payday so that I’ll get a larger tax return at the end of the year.  My mother thinks it’s a good idea to buy a savings bond every payday and then at the end of the year cash them in and pay that towards my credit card bills.  What is your advice? 

You would be amazed at the number of people I talk to think along those lines.  So here is my advice: 

• First - The basic problem here is a lack of self control where it concerns your spending habits.  If you can not get a handle on that then really no other advice I give you is worth any thing.
• Second – I’m not a big fan of using Uncle Sam as a forced savings account.  Too many things can happen that might really require that money, so it’s better if you have some control over it.  My suggestion would be to open a savings account and have the money withheld by your employer and then deposited into that account.  If your employer can’t or isn’t willing to do that then most banks have something like a Christmas Club and will automatically deduct a certain amount of money from your checking account every month.

• Third – Saving Bonds are an ok idea but there is really no need for then and the interest you receive from them doesn’t amount to much.

• Fourth – Here we get to the meat and potatoes of your credit card situation.  CUT UP the Credit Cards you have right now.  If you NEED to buy something pay cash for it, if you don’t have the cash, don’t buy it.

• Fifth – Learn how to budget.  Get help if you need it from a trusted friend, if that’s not possible contact your local college and see if they have a class on budgeting.  You must learn how to budget your money if you’re to get out of debt.

• Last – One of the most effective ways to pay off a credit card fast is to transfer your high interest credit cards to a 0% interest balance transfer credit card.  If you go to this page, (Interest Rate Comparison), you will the effect of the various interest rates have on how quick you can pay off your credit card. 

I realize that most of that seemed common sense but when you’re stuck in that never ending maze of credit card debt it can seem impossible to get out.  Just remember to follow theses simple steps and you should be out of debt in no time.