Credit Card Debt: How to Manage It – Credit card is the most common source of personal debt. Average consumer cannot trust the quoted interest rates being advertised by most small business credit card firm. The astute consumer who knows his mathematics of finance will realize that the effective interest rate using actual cash flows for paying credit card debts are on the high side.
And this does not even include fess for maintaining the credit card and other penalties like being over the credit limit, late payment, etc. The regular customer also doesn’t realize that when credit card amortizations are settled, especially for those who pay the minimum amount charged in the credit card bill, only a mall portion of the payment goes to the principal (the amount actually owed). The bigger portion will pay interest charges. Under this scenario, it takes a lot longer to settle the account and in the long run the interest charges can be unsettling.
Credit cards, though, are not necessarily bad. They are tools of convenience but should not be used for incurring interest bearing debt. Always pay the full balance when due and don’t just settle for the minimum payment required.
As individual choose debt beyond the basics, they are making themselves prisoners of their own trappings. When we borrow within our means, we lose a lot of flexibility to decide our fate. How many debt burdened individuals have found themselves working in jobs they don’t like but they cannot afford to quit? They are unable to set new financial goals and objectives for themselves and their families because future income is already committed.
To free from credit card debt, start paying more then the minimum on credit card and other obligations. Move some of your savings (which pay very low interest) to settle some of your debt. Look at the difference in the effective interest you earn on your savings (after tax) and the effective interest of your debt. Develop a debt reduction plan and free yourself of its bondage.
Discipline is very important here to make you ultimately free from credit card debt!