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Get in charge of your credit cards

Article by: Kim Tilley
Dated: May 26, 2006

(...before they get in "charge" of you)

The majority of Americans carry a credit card balance. These balances can add up fast! Banks are in the credit card business to make money, not give it away, and they will try anything to dig further into your pocket. The entire system is designed to get you in debt and keep you in debt. You could almost consider a credit card the new form of "indentured servitude" - you are working to pay off your debt every month, sometimes for many years. Credit cards entice you with the promise of instant gratification and delayed payment - you can have it now and pay later. The problem is that later can be years later, if you only pay the minimum payment due. Of course, all of this is with your permission. No one holds a gun to our heads and forces us to rack up debt. But is so easy to do!

So how do you take "charge" of the situation without it taking charge of you? The first step is to know your weaknesses! I am definitely one of those people who has to stay away from credit cards. They do not seem like real money. So I try to pay cash for everything, because I know I am still tempted by them, even after years of frugality. Other people are able to use credit cards in moderation and pay off the balance every month. If you are one of those people, good for you! Just remember that you can still get burned with credit cards, no matter how careful you are.

PART I: Games People Play

Here are just a few of the ways that credit cards are designed to keep you in debt:

"You're approved!" - Even my five-year-old has received one of these in the mail. With the credit card market saturated, banks are going after people who cannot afford to have credit cards. They are targeting teens, the elderly, and get this - the mentally disabled! Everyone is fair game in the eyes of credit card companies.

The "late" payment - There is no doubt that you should always pay your bills on time. Some companies will shorten their grace periods and lengthen their processing periods in order to generate more revenue with late charges. My husband and I experienced this more than once as we were paying off our credit cards. We have always paid our bills on time, like clockwork. Suddenly, we were getting late fees because the bank said it took them 10 days to process our check. That meant that if we sent our payment in a week before the due date, it would still be late because they would not "process" our check until three days after the due date. Needless to say, we got rid of that card fast.

Rate raising - Another trick is to raise the interest rate on the card every time there is a payment considered late. We had this happen with the same company who did the little trick above, changing the grace period and lengthening the processing period, so it takes longer for your account to appear paid off. They will also raise the rate if you go over your limit on your card, but do you notice that they always accept your card even if it goes over the spending limit? Banks want you to do this! If they did not, your credit card would show up as "declined" and you could not use it even if it was a dollar over the limit.

Limit raising - Sometimes banks reward their customers by raising their limits, so the customers will spend more, even if they cannot afford it.

The low payment game - One of the fundamental reasons that people do not pay off their credit cards is that they are not really given any incentive to do so. Banks make the payments very low, so low that the person with the balance will be paying off the debt for many years beyond what it would take to pay off a conventional loan.

Hot potato - by transferring your balance from card to card, you are not eliminating your debt, just prolonging it. Many banks lure new customers with low interest rates on balance transfers for a limited period of time. It is a good idea to transfer a balance to a lower interest card and pay it off, but many people wind up running up the card they have cleared and the card they have transferred their debts to. Play hot potato with your credit card balances and you're going to get burned!

The credit game - We can't just blame the banks for this one. The mere fact that you have to have established credit to buy a house is ridiculous when "established credit" is having an established credit card habit. Unfortunately, the system does not reward those who stay out of debt, it only rewards those who borrow money (and pay it back). The notion of wanting to know that the borrower is responsible is a good one, but isn't there a better way? Why are only those who go into debt rewarded for doing so?

What can you do? Why, you can take charge!

Part II: Take Charge!

You can turn the tables on this credit card game by refusing to go into further debt and paying off your existing debt. Take "charge" of these cards and refuse to go into any more debt. The best thing you can do is to get out of this mess! But how?

Don't charge another thing! Always pay cash. How many "emergencies" have you really used the card for anyhow? Remember that emergencies do not include a night out on the town, a spending spree at the mall, or the latest, coolest computer game. If you are worried about having money for real emergencies, such as unexpected medical bills, replacing furnaces, cars and unexpected travel, you need to budget an emergency fund that you can contribute towards every paycheck. Even if you put only $50 a paycheck into this fund, before long you will have something substantial to fall back on. The trick is not to touch it unless it is a REAL emergency!

Refuse to charge another thing! Here are some methods to strengthen your resolve:

Cut 'em up! Get the scissors out and have a ball. Recycle those cards into guitar picks or retile your pool with them like Martha Stewart (just kidding!)

Put a freeze on spending - Wrap them up, stick them in a freezer container with a bunch of water and put them in the deep freeze. Out of sight, out of mind! If you do get the urge to spend, you will have to wait long enough to think about it (no cheating with the microwave!)

Bury the evidence - If this does not work, have a trusted friend or spouse bury them in the yard somewhere. If you have to do it, bury them in the fall, just before winter, the ground will freeze the cards for you and you won't be able to find the cards under all of that snow!

Close your account - This is by far the best way to avoid more debt. Focus on getting that debt paid off, not accumulating more.

Live within your means - Follow the guides on our site for getting started in frugality. Many people try to elevate their standard of living with credit cards, and they ultimately make the quality of their lives worse because of the stress of the debt load they are carrying . You can live within your means, it just takes some planning and effort. Feel free to ask questions on our message boards, discussion lists and chats. Fractured Frugal Friends is an online community dedicated to helping each other become and stay debt-free. You can do it!

Stay debt-free - This is like being on a diet, and some people slip. You need to stay off of the credit cards for good. For some this is like being told they can no longer eat chocolate, but it is for your own good. You may have to go through the entire process of paying a card off, getting one and running it up again, and paying it off, a few times before it sinks in. I have been through this too, I know how hard it is!

Once you have your spending under control, it's time to move on to...

Part III: Payback Time

This is the hardest part! Yes, the banks do expect you to pay them back. Of course, they want you to take a LONG time so that they can make as much money off of the interest as possible. But that is not in YOUR best interest, is it? You want to pay these off as quickly as possible - the faster, the better. But sometimes the amounts are so huge what can you do?

Start with the lowest balance - Pay off the easiest one first. This will give you confidence and a feeling of success. You can do this!

Budget a set amount - For paying off the balances and stick to it! Even if it is only an extra $50, it is something!

Don't rack up more debt - Use the tips above to freeze your spending.

Cut other areas of your budget to pay off your debt - Cut down anywhere you can and apply the extra money to the debts. Do this BEFORE you take out your personal money.

Establish tangible goals and post them - in a place where you can see them. If you are paying off debt to be able to buy a home or retire, put a picture up to motivate you - a picture of your dream home, someone playing golf, whatever will help you visualize your goal.

Snowball effect - As you start to pay off your credit cards, take the money you were paying on a card that is now paid off and apply it to the next one. For instance, you pay off a card that was $100 a month. Instead of reclaiming this money for other expenses, apply it to the next card to be paid off. Continue to do this until all of your cards are paid off.

Lower your interest - Switch higher interest debts to lower interest cards and cancel the original cards. A free and clear credit card is an open invitation to spend!

DO NOT get a home equity loan - no matter how good they sound. These loans are tied into the equity of your home! If you have to move or sell your house, you also have to have this debt paid off. Borrowing money against the equity of your home is like leasing a car - you are going to lose! If you absolutely HAVE to get some kind of loan, look for a consolidation loan that has a low interest rate (these are hard to find!). The best way to avoid more interest is to move the debt to a lower rate credit card and pay the thing off.

Get help if you need it - Some people need help to get out of debt. The Consumer Credit Counseling Bureau is a great resource, as well as Debtors Anonymous. Spending is an addiction for some people, so get the help you need, you will be glad you did!

Remember, it took you a while to get into debt, it is going to take a while to get out of it. Just stick with it, and focus on your goals. Don't you want that money you work so hard for to go into your pocket? It may not be easy to get out of debt, but it does not have to be miserable or lonely. Talk with friends who share your goals and hold each other up through the hard times. With patience and encouragement, you can do this!!!

Online Resources:
Debtor's Anonymous
Consumer Credit Counseling Service
National Foundation for Consumer Credit Counseling
1998-1999 Consumer Resource Handbook

About the Author:

Kim Tilley is the mother of three boys, ages 8,5 and 1. She is the online editor for a local tv station and the editor of Frugal Moms. She is also a tightwad at heart. Her interests include cooking, crafts, gardening, computers, and saving money! When not typing away at the computer, she entertains herself by chasing kids and finding ways to create something out of nothing!
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