With the average person holding balances on 13 different credit cards and $22,100 in debt, it is quite likely that you too have credit card debt. You will probably agree that such an amount of debt is not exactly enjoyable as it adds stress to our personal finances as well as our relationships.
Such debt might be the result of impulsive spending, escalating personal expenses, medical costs and other emergency expenses. However, credit card debt has to be dealt with effectively, as it will affect the budgeting and planning processes. The areas of focus listed below will surely help in recognizing bad spending behaviors and in curtailing additional expenses. With time, knowing what caused such credit card debt will help with budgeting.
1. Unnecessary expenditures: If you spend more than what you earn, try to recognize the problem. This habit normally takes form when you make unnecessary purchases that exceed your budget, thus damaging your personal finances. However, if you control your expenses by limiting spending on luxury items (such as movie nights, dining) you will surely help your credit card debt. If you can curtail your spending, you may even have enough money left to start repaying the credit card debt. Ultimately, this is what you want.
2. Large unexpected expenses: Although large credit card balances do not appear overnight (not usually, anyway), it is quite possible that we noticed from one statement to the next that the balance at least jumped. This is often the result of a series of large unexpected expenses. The biggest culprits are home and automobile repairs, which not only surprise us the first time around, but seem to reappear shortly after we make our first repair. While we likely had the good intention of repaying this credit card debt as soon as possible, it is common that we become complacent about it as it means cutting back in other areas of life. The result: we carry larger credit card balances and have higher minimum payments to make. By repaying this debt swiftly, we are able to enjoy more of the money we earn.
3. Prolonged Medial Expenses: When someone you care about is ill and requires prolonged medical attention, paying the medical bills with a credit is both convenient and often our only method of payment. Often, however, the treatment and/or prolonged hospital stays push our credit to the limit or beyond. This is where additional credit cards come in handy. If we are not excessively careful during such emotionally difficult times, we will rack up our balances rather quickly. Ultimately, we may find ourselves unable to make the minimum payments on our credit card debt, which will not only impact our overall financial health but our credit score as well. For this reason, medical expenses are one of the most popular reasons why people file for bankruptcy.
4. Unplanned loss of income for an extended period of time: Losing our job is never fun, particularly these days. In order to continue feeing our family and maintaining the household, it is common for people to resort to available credit card limits. While this is understandable, we must also do our very best to curtail our lifestyle during such times (research suggests that we do not, however). Eventually, our credit card debt climbs to the point where our lack of income combined with higher minimum payments lead us to a trustee’s office. While unemployed, credit card debt can quickly spiral out of control. If bankruptcy becomes our only option, then finding a job will become even more difficult (since most employers obtain a credit history before extending job offers), particularly in a competitive job market.
When dealing with credit card debt, our best option is to reduce our expenses. This could mean leading a simpler life, it could mean forgoing some luxury items, or a combination of many other options (but it does not mean sacrificing life altogether!). Turning our high-rate credit card debt into a top budgeting priority not only helps us eliminate or reduce steep interest payments, but it will allow us to prepare better by establishing a solid savings base.
