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Can Credit Card Applications Help You Get out of Debt?
The American way of life has become one of instant gratification. Buy now, pay later! Millions of people file one credit card application after another, but many people are discovering that it is possible to have too much credit. You keep getting offers - credit cards with no annual fee, credit cards with low APR, credit cards for students, etc. - but you soon find that the more credit you have, the more likely you are to use it — and that can be devastating to your financial situation.
Statistics show a typical family in the United States has more than $8,000 in credit card debt. That’s the average. If you have significantly less than that, then good! You’re better off than some. But if you have more than that, you might start to consider whether your credit card applications are creating more problems than they’re solving.
Of course, short of inheriting millions from your rich uncle, there’s no realistic way to wipe out your credit card debts all at once. It’s not going to happen instantly. No doubt it took quite some time to rack up that debt in the first place; it’s going to take some time and effort to get rid of it, too. Fortunately, debt reduction can be done, and you can see the positive effects of it almost immediately.
The first thing you should do is look at your credit card habits. Are they only for significant, uncommon expenditures like getting the car fixed or taking a vacation? Or are they for everything you buy, from groceries to gasoline to movie tickets? That’s a sure way to amass a huge pile of credit card debt. Change your habits so that the credit cards are only for unusual expenses, not the everyday things.
Having firmly fixed that strategy in your mind, you next need to actually follow through with it. Quit using your credit cards. When you leave the house, take only one with you, for emergencies. If you’re only using them for unexpected expenses, there’s no reason to carry all three or four cards around with you, right?
Are some of your cards completely maxed out? Cut ‘em up and throw ‘em away. You don’t need them. Your ultimate goal is to get rid of all that debt and reduce the number of accounts you have. A maxed-out card is useless to you. And don’t apply for credit cards anymore, either. You don’t need more of them.
One of the most annoying things about credit card debt is that when you pay the minimum payment, most of that goes to the interest — you’re not even paying for the actual money you borrowed! One way to work on that is to pay more than the minimum each month. Maybe you can only afford another $20 every time, but every little bit helps. Everything you pay above the minimum goes right to the principal.
Something a lot of people do as a means of eliminating credit card debt is to take out a home equity loan, or to get a low interest credit card, and then transfer all the existing debt to it. Either of these plans will move the credit card debt to a place where your finance charges won’t be so high — but there are risks.
Let’s say you take out a home equity loan and use the cash to eliminate the credit card debt. That’s good - but now you have these credit cards with NO BALANCES. Your spending finger starts to get itchy, doesn’t it? You have to cancel those cards, keep only one or two for emergencies, and get rid of the rest! Otherwise you’ll pile up that debt all over again, and be worse off than when you started.
All these credit card applications in America have resulted in something called “credit counseling,” where firms say they’ll haggle with your credit card companies for you, in the hopes of getting you lower interest rates and more feasible payoff plans. Some of these companies are legitimate, while others will only make things worse for you. Research them carefully before using any of them.
If you can’t seem to keep your head above water when it comes to your credit card bills, your absolute last resort should be bankruptcy. The idea sounds wonderful — all your credit card debt wiped away, never to return! — but bankruptcy has long-lasting and devastating effects.
You’ll have bad credit or no credit for several years. The only offers you get will be for credit cards for bad credit; the credit cards with low APRs and credit cards with no annual fees will be a thing of the past. What’s more, filing for bankruptcy means basically switching to a cash-only system for the next few years. Cash, checks, and debit cards will be your only means of payment. That may sound like a good thing, but what about emergencies? What about unexpected expenses? You’ll be stuck.
So leave bankruptcy as a last resort. Try everything else first. Once you’ve gotten your situation to where it’s a bit more manageable, you’ll notice a huge burden lifted from your shoulders, and the light at the end of the tunnel will seem brighter. Impose your own limit on your Visa credit cards and others — if the real limit is $1,500, set your personal limit at $700. Then there will always be some wiggle room if something unexpected comes up, and you’ll avoid becoming stuck in debt the way you were before.
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