Credit Card Debt - One of Life’s Booby-traps.

Written by A Guest Speaker on May 19th, 2008

Credit Card Debt - One of Life’s Booby-Traps
Written by Tony Currie

Credit card debt is one of modern life’s booby-traps. It is seductively available and so easy to obtain that you are encouraged to overlook all the painful parts and only concentrate on the immediate gain.

On its own, credit card debt isn’t necessarily a problem, as long as you are:

capable of paying it off at the end of each month
organized enough to pay it off at the end of each month and
disciplined enough not to use it for gambling or other addictions

But statistics show that most of us fail on at least one of the above, and that leads to high charges and can quickly get into a spiral of debt which starts affecting other parts of our lives, especially emotional relationships and family responsibilities.

Credit card debt is the most expensive form of debt to service. As well as the high monthly interest charges, there can be very high charges for failing to meet the monthly repayment schedule. If you are ever tempted to leave some debt on your card at a month end, you need to start reviewing your personal finances quickly and get to the bottom of why you have got to this position.

There are alternatives to credit card debt.

Bank overdrafts are the simplest (as long as you arrange these with your bank beforehand), but won’t be much cheaper. They will have the advantage that you will have to review them with your bank and that discipline should help you control your use of them.

Term bank loans are often the best option. Usually these would be used for a specific purchase (eg a car or a home improvement), but most banks would consider using them to pay off credit card debt as long as they are satisfied that you can meet the repayment schedule. Again, the discipline of the process would help in many cases to ensure that you have got control over your personal finances.

The cheapest form of debt finance is secured finance, usually a mortgage or second loan on a private property. If your home is worth significantly more than the loans you currently have secured on it, you can raise money this way and pay off the credit card debt over a much longer period.

But if your credit card debt has got to the stage that you need to consider these options, the first step you need to take is to work out a complete household budget, to see exactly where your money is being spent. Once you have done this, you can review your priorities and work out a plan to keep within your income level. This won’t be an easy thing to do, and will likely involve some very difficult decisions, but is essential to ensure your emotional and physical health.

If you have good personal discipline you can take advantage of the credit card debt industry. There are often introductory offers made to tempt you to take out new cards. Such offers usually are of three types:

low introductory interest rates
initial interest free periods
cashback on purchases

Sometimes you can get combinations of all three. You are particularly interested in the cards with long interest free periods.

To take advantage of the initial interest free periods, you need to be disciplined enough to still pay enough to meet the monthly full payment on your credit card debt into a high interest savings account that allows immediate access. Then, just before the end of the introductory period ends, close the savings account and use the balance to pay off all your credit card debt. Don’t forget that the interest you received on your savings account may leave you with some additional tax to pay at the end of the year!

So discipline is the key to using credit card debt to your advantage. If you remember this, you will be able to use credit card debt as a tool to save money, rather than allowing it to get out of control and destroy your lives.