Cut Your Debt | Become Debt Free | Debt Management

These days, a credit card has become almost a necessity. The only thing is, now that I have cancelled my American Express credit card, I’ve lost access to so many things. I found I couldn’t join my local gym, order clothes over the internet or even reserve a plane ticket to New York, online, the basic stuff of life. The old days of cash as the preferred method of doing obtaining goods have gone.

Using an American Express, Visa or Mastercard has become commonplace globally but we do it without thinking, do I need this and do I have the money. Using your American Express credit card may be convenient but there is a cost for the convenience of paying at a later date. In many places around the world, credit card debts are increasing at a worrying rate. It is not a lie when I say the credit card debts are the biggest worry facing the people in America.

That is one of the main reasons why I had to cancel my American Express credit card in the first place. The problem was it was too easy just hand over my card and buy things without seeing the money being spent. I would charge everything and anything on it, and soon the costs would spiral out of control. When the debt became so great that I couldn’t possibly pay it, I began to panic.

Repaying my debt wasn’t easy and it took the help of a debt refinancing service to put me back on track. This is not something I ever want to happen again. The hardship was worth it though because I am now debt free and my American Express credit card is no more. A lot of people would think that it is rash to blame it on my credit card, but I think that they do not understand something about human psychology.

I was more conscious of the cost of things when I paid for goods in cash. Credit cards make it too easy, especially because you rarely look at the cost. I would just keep spending, not realizing until all the money was gone. I no longer have an American Express credit card problem!

Technorati Tags: Credit Cards, Finance

No Comments yet »

While most people now carry around a number of strips of plastic in their wallets that they may refer to as credit cards, many of them are in fact quite different and not actual credit cards at all. Let’s look at the difference between the three major types of charge cards.

Credit Cards

True credit cards give you a line of credit, with the minimum limit of most cards being in the $500 range. The upper limit could rise to much as $25,000. Portions or entirety of the balance can be paid each month with a small additional fee based on the card’s interest rate.

The limit and interest rate is often determined by the owner’s credit rating upon applying for the card, and these may change over time based on usage of the card. Making your payments on time could result in a limit increase, while not doing so could see your limit fall, your interest rates rise, or your credit line cut off entirely.

Secured credit cards are slightly different, in that while they extend a line of credit, a deposit generally equaling the line of credit is needed to obtain one of these. These cards are for people with poor credit trying to repair that credit, or who have no credit at all and are looking to establish their credit history.

Charge Cards

These cards differ from credit cards by having no spending limit at all, but the balance of the card is to be paid each month, rather than in small monthly payments like with credit cards. Most charge cards will levy fees against anyone carrying a balance on their card to discourage it. Charge cards can be cheaper to use than credit cards, but considering the balance needs to be paid each month, it makes one question the actual use of these cards. Rather than living a month ahead and paying interest on your purchases, it makes more sense to simply live in the present and pay for everything without the use of the card.

Debit Cards

These cards are issued from your bank, and allow you to pay for purchases with money from your bank account. This is a popular alternative to cash, with most stores who accept credit cards now also accepting debit. These cards can also be used at many ATM’s to withdraw cash from your account. Some debit cards can also be used to make online purchases as well.

Plastic or no plastic?

As convenient as these cards are, there’s no doubt that all they do is add additional fees to your life that wouldn’t otherwise exist. Debit cards are of course relatively safe, and may not even impose fees when paying for something with them, though they will when using them at an ATM.

Charge cards also discourage overspending, making them relatively safe, but also arguably useless.

Credit cards are really nothing but a siphon, sucking all of your money dry with often ludicrous interest rates, and have unquestionably led to the financial ruin of many households simply living beyond their means. This is why many consumers consolidate all credit cards onto one card and get some control of the card debt.

If you must carry any strips of plastic consider their use wisely before getting tangled up in their web from which you may never escape.

Technorati Tags: Credit Cards

No Comments yet »

Companies throughout the world all operate under the same principle which is to make money, but more than that, to turn a profit. Making all the money in the world doesn’t do you any good if you’re still spending more than what you make, and this is the same in personal financing. You’re very much like your own little company. You have expenses and revenue, and these need to be properly balanced to keep you out of the red.

When companies are first getting off the ground, it usually takes some time before they begin to turn a profit. An initial loan or funding is used to get the company off the ground, get the concept launched and the word out there about the service or product. The rate at which this initial funding is spent is often referred to as the burn rate. The faster the funding is burned through, the quicker the company must increase revenue to counter it, or the company will not long survive.

The trouble with personal financing is that increasing your revenue is quite as easy as it can be for a company. Unless you take on an extra job or get a higher paying one, your revenue is going to be static. For this reason your burn rate must be minimal. Using up your resources too fast will leave you unable to manage, where upon you’ll reach the equivalent of a company going out of business, bankruptcy.

This wasn’t so much an issue in years past, where credit was harder to come by. With no credit, it was all but impossible to spend more than you were earning. But in this era of cheap credit, that’s no longer the case. You can easily live above your means for a long stretch of time, as many people have, eventually hitting the end of the line where even the credit gives out and you hit rock bottom.

The other thing that separates you from a company is that you have something that must be planned for long term, which is you retirement. So not only do you need to not spend more than you earn, but you should be spending less than you earn. As long as a company is at least breaking even, they’re not in terrible shape. Their stockholders may not be happy, but ultimately they’re no worse off. They don’t have that end goal that must be met like you, and the time is always running out on meeting that goal.

Since time is of the essence, you must be setting aside a certain amount per year, which could be called your profit margin. Based on your income and how much you want saved away for your retirement, you could be looking at a desired profit margin of anywhere from 5-10%, which will be used to fund investments.

If your current profit margin simply isn’t cutting it, then you need to cut your expenses. Again, you don’t have the luxury of increasing revenue, so this is the one option open to you to reach your margin. This is again all about balance. You need to cut expenses in a way that won’t be detrimental to your living, by cutting things you can do without. Review your old VISA card balance for example. What extras have you been buying that could be cut out? The opposite of poor retirement planning is over planning. Do you really want to live like a hermit for 20 years just so you have a few comfortable years at the end of your life? Make a plan that’s comfortable and that you can stick to. If that means working a few extra years or something along those lines, then so be it.

Technorati Tags: Credit Cards

No Comments yet »