Five Ways to Stop Creating Debt

Most of us have been there – incurring credit card debt and seeking ways to consolidate the debt by utilizing another credit card. The “borrowing from Peter to pay Paul” syndrome is alive and well and as a result consumer debt is higher than it has ever been.

The current economic crisis has produced a credit crunch that is wreaking havoc on credit card interest rates. Even though the Federal Reserve has lowered interest rates dramatically, it has not decreased the interest rates on credit cards. To the contrary; because of the increased burden on consumers, many individuals are either going into default or declaring bankruptcy. Moreover, the banks are raising interest rates for those who have been making late payments and/or skipping monthly payments. People are scrambling to consolidate student loans debt

If you are concerned about your current debt, here are five ways to help you deal with the situation:

1. Debt Consolidation. When you receive a credit card offer in the mail stating that you can pay off other credit cards by applying for the card with a 0% APR – read the fine print. The 0% APR is applicable for a short time only. Unless you can pay off the new card within the time frame given, you are just creating additional debt.

2. One Card Only. If you have more than one credit card, save one for emergencies only and cut up the rest. If you cannot afford to buy an item with cash, don’t buy it at all.

3. Pay Down Debt. The next few years are going to be difficult during this recession. Start paying off credit cards using the Snowball Method. Make a list of the credit cards, with the highest interest rate card at the top of the list. Instead of paying the minimum for the card on top of the list, add additional money to the payment. Once the first card is paid off, use this same method with the second, and so on.

4. Credit Card Checks. Every month you may receive credit card checks, one of which is probably made out to you for the amount of $1000 or more. The rest of the checks can be used for purchases or transfers. Rip them up! It is very tempting to deposit the check and use the rest to make purchases.

5. Department Store Credit Cards. No doubt you have been asked by the cashier at a department store if you wish to apply for instant credit in order to obtain a discount on your purchases. Do not apply. Department store credit cards have the highest interest rate among all credit cards.

We are a nation in debt - over a trillion dollars’ worth. Since we do not know how long this recession will last nor how it will affect our income and retirement savings, it would be prudent to resist any temptations that may come your way inviting you to spend more than you can afford.

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