How To Reduce Your Credit Card Debt

For many consumers, credit card debt is a deep “black hole”—an endless cycle of new cards, rolled-over debts, unpaid bills, and calls from bill collectors—with seemingly no way out.

Across the country, Americans are using credit cards to spend more than their incomes, and consumer debt is reaching record levels, despite a strong economy.

Part of the problem stems from the increasing numbers of pre-approved cards going out in the mail. Twenty years ago, credit cards were virtually non-existent. Today, they are everywhere—and for many have become the main source of ongoing credit problems.

How does this financial “black hole” grow and swallow family income?

Often, people use credit as a source of income, purchasing with a credit card even though there’s no money on hand to make future payments. Many pay back only the minimum amount monthly, in effect letting their cards provide them with revolving credit lines. Some also continuously roll their credit card debts over to cards with lower rates—failing to “pay down” their cards, and never really resolving to do so.

All Walks of Life

People with credit card debt are from all walks of life. In fact, increasingly, they are people with higher income levels, whose income allows them more available credit. A couple may both be working and have a family, three cars, a big new home—and maxed-out credit. One major change in income can “tip the situation very quickly.”

Experts agree that higher-income people are at equal—or greater—risk for credit card debt. People with good credit have more opportunities for problems, because there are so many credit card offers. Many people get four or five credit card offers a week. Those with higher incomes earn more, can get more credit and therefore can spend more. By the time people even realize they’re in trouble, their debt amounts can be staggering.

Common, too, are large debts among younger people. College students are often targeted by the credit card companies. Credit card debt, student loans to repay, and an entry-level income all add up to trouble. Larkin paints the scene: “You see young married couples—they each have a student loan and four or five credit cards apiece. They think they’ll pay it all off when they get that magic job after college, and then reality sets in. They’re deep in debt and they don’t know how to get out.”

How do people find their way back to greater financial security?

Establishing a Budget to Reduce Debt

Preparing a monthly budget is the key to financial security. If you want to make better use of your money, you must learn to take control of it. That means budgeting for today’s needs and tomorrow’s plans. Here are some steps:

• Figure out what you spend. List your monthly living costs including food, shelter, clothing, medical, transportation, utilities, entertainment and so on. You may need to “track” your expenses for one month to get an accurate accounting of what you spend on items such as food, gas, and entertainment.
• Total your after-tax income.
• Subtract monthly expenses from monthly income to see how much is left over to pay off debts, including credit card debt.
• Start a savings account. Pay your savings account just like you would a creditor.
• Use common sense to stay out of trouble. If you’re a compulsive shopper who can’t resist a good deal and is chronically late on credit card payments. . .put your credit cards away until you can learn to live within your budget!

Ask yourself a few simple questions:

• Do you think before you spend?
• Are you willing to make changes in your spending habits?
• What can you do to decrease your spending or increase your income?

Some people prefer to change their lifestyle and spend less. Others would prefer to find a part-time job until their credit cards are paid down. If you’re serious about reducing your credit card debt, you’ll need to set priorities and make changes.