Throughout the middle class there is a personal finance disaster looming as personal debt rises to record levels. If you’re struggling with personal debt levels or even getting close, here’s a simple first step to turning it all around…
Credit card debt is often the biggest personal debt load after a mortgage. When you got your first credit card, you most likely promised yourself you’d treat it with respect – you’d keep it for emergencies and pay it off in full whenever you did need to use it, right? Not quite the way it turned out though, is it?
Your personal finance plan worked ok at first, but then that started to slip and through habit you started using your credit cards more and more and today you couldn’t possibly pay them all off this month – or even in the next 2 or 3 months, most likely. And how many times have you sworn you’d stop using them for a while and get things back under control? Unless you’re foolishly overspending for your current income and debt load, the problem is convenience.
The earliest credit cards were for those already fairly well off, to help them keep their accounting simple. They weren’t thought of as credit cards but as ‘travel & entertainment’ cards, and they HAD to be paid off in full every month. Diners Club, American Express and a few others led the pack, and most people would be better off today if all cards still worked that way.
But then there was a demand for ‘convenience’ cards among the growing middle class and Chargex was created to fill that need. Over time Chargex became Visa, MasterCard emerged on the scene and department stores began creating their own credit card programs, usually at a much higher interest rate. In the 1960’s and 1970’s the western economies were moving ahead full-tilt and credit became easier and easier to obtain – and people slowly started using credit cards instead of cash for many, if not most, of their purchases.
In theory, that should create more jobs, build the economy and lead to greater income for all, making it easier to pay higher and higher credit card bills each month. Cardholders would make a major purchase and just pay part of it the next month, then make another major purchase before paying off the existing balance. People still made their payments each month, but each payment was more than the minimum but less than the full balance. And over time most people’s personal finance plan went out the window, replaced by higher credit limits, more cards and more total debt.
You know you’ve hit the point where you need to pay your cards off, or at least pay them down, if for no better reason than to save all of the interest you’re paying across all your cards. Fortunately, Visa and MasterCard recognize the issue too, and have a solution that can be your first step in correcting your current personal finance imbalance – the pre-paid credit card.
Don’t mistake these for the gift cards you see by the cash registers of the big chain stores. These are actual reloadable cards that are accepted just like any other credit card worldwide. And while they’re still referred to as credit cards, they really aren’t – there’s no credit involved since you can only use them up to the dollar amount you’ve already deposited on your account. You do pay a small monthly fee for these reloadable pre-paid credit cards, but in most cases it’s far less than the interest you’re paying currently.
So if you’re serious about taking control of your finances and starting to dig you way out of debt, get yourself one of these cards today – or at least this week. They’re available at many banks, some big organizations like the auto club, and a variety of other outlets. Be sure to find out the fees for the card, the maximum and minimum loads you can put on the card, and double-check to be sure it’s a reloadable prepaid card. Most can be loaded online through your bank, but check to be sure so you don’t run into any problems.
Load the card with enough to get you through each month, with a little extra just in case – there’s nothing wrong with building up a bit of a cash balance. Then take the other credit cards out of your wallet or purse and put them away in a safe place for now – if you keep them on you you’ll end up using them from habit, not from need. Keep paying as much as you can on them each month, just don’t use them. That will keep them in good standing in case of emergency, but your balance will be dropping each month. If you’re deep in debt most of your payment will be eaten up by interest, but the total will drop a bit – and each month it will drop by a little more since the interest drops as the outstanding balance does.
This is by no means a cure-all for your personal debt, but it IS a step in the right direction and a fairly painless one at that. You’re starting to wrest back control over your personal finances and moving toward a viable personal finance plan. As you see your overall credit card debt receding, use the confidence and motivation it brings to tackle other aspects of your personal finances and bring them under control as well. Your current situation stems from too little income, overspending or both – your goal over time is to balance that back out in your favor. You CAN do it – just be sure to focus on solutions instead of worrying about your current debt load or worse yet, ignoring the problem.