Do you realize that every time you hear the phrase "put it on the plastic," it is the same as "taking out a loan"?
Credit has become a part of the lives of most Americans. Most of us have used credit for large purchases such as an automobile or our home.
We cannot live above our means for very long. Ultimately, we must be able to pay off our credit debts or we face the possibility of financial crisis.
Here are some steps that can help maintain sound financial practices.
Cut credit card debt
Using a credit card changes your spending power. The greatest disadvantage of credit use is losing financial flexibility in managing today's money. Credit cards can reduce your future buying power if you carry a balance and let finance charges build up.
Develop a plan
How can you get rid of your credit card debt? First, gather all your credit card bills together. Make a chart showing the total balance and the minimum monthly payment required for each account owed.
Next, look at your debts and set priorities for your repayments. Which debt will you pay first?
Choose a strategy that reflects your money style. If you need success stories to maintain motivation, the strategy of paying off the smallest balance first will work best for you. If you want to reduce the amount of interest you are paying, choose the strategy of paying off the high-rate card first.
Once you have a plan, you are on your way to reducing your debt.
Prioritize repayments
Credit card companies require a minimum payment each month. However, if you pay only the minimum, it can take a very long time to clear your balance.
For example, if you have a $3,000 balance and an 18.9 percent interest rate, a typical minimum monthly payment might be $50. It will take 15 years and six months to pay off your debt, and it will cost you $6,279.85 in interest charges.
Plan to do more than just pay the minimum. In the example above, if you pay $60 each month instead of $50, it will decrease the time to eight years and four months and the interest charges to $2,947.
Look at your spending habits and see where you can make cuts to find the money to pay your credit card bills.
Cut debts ASAP
• Pay high-rate cards first. At higher interest rates, more of your monthly payments go toward finance charges. Quickly paying off balances with high rates can free up cash to pay other bills.
• Pay off the smallest balances first. This gives you extra money to pay on the bigger balances.
• Make PowerPayments. Once you pay off a bill, next month add the amount you've been paying to the check you write to your remaining creditors.
For example, let's say you pay $30 a month to Card A. Once it is paid off, you add $30 more to the check you write for Card B. When you've paid off Card B, add $60 to the check you write each month to Card C, and so on until all the accounts are paid in full.
The free PowerPay computer program (www.powerpay.org) calculates the savings when you make PowerPayments in three scenarios:
1. Paying off creditors with the highest interest rates first.
2. Paying off creditors with the lowest balances first.
3. Paying off creditors with the shortest terms first.
PowerPay can also customize repayment schedules or add an additional amount should extra money become available.
• Stop making new charges. If you have to, have a "plastic surgery party" and cut up all your cards, hide them or lock them in a drawer. One family even went as far as putting their credit cards in a bowl of water and freezing them to avoid the temptation of using credit.
• Stay flexible. If you find that you set unrealistic spending limits in the beginning, revise your spending plan the next month.
• Get a cheaper credit card. Find one or two low-rate cards and cancel all the others.
It isn't easy to reduce credit debt and meet all your other obligations at the same time. Just remember, you probably did not get this far into debt all at once, so getting back out will take some time as well.
Scott Taylor is the program assistant for Family and Consumer Sciences and 4-H at the Hernando County Cooperative Extension Service. He can be reached at staylor@hern andocounty.us.
>>Learn More
About the program
For information on PowerPay, visit www.powerpay.org. PowerPay is a free Web site developed by the Cooperative Extension Service and WebAim.org, with the mission of turning debtors into savers. At the PowerPay Web site, you will be directed to select your state. Once you click on the state, you will be asked to register and will be directed to a welcome screen with several options to explore. You may also visit the education center, where there are a number of articles on financial management.
If you go
The Hernando County Cooperative Extension Service is offering a free one-hour class on "Credit Card Awareness" to provide insight on how to improve your financial health. Classes are at the extension service classroom on Oliver Street in Brooksville from 6:30 to 7:30 p.m. Tuesday and at the Forest Oaks Government Center from 6:30 to 7:30 p.m. Aug. 21. Cal Scott Taylor at (352) 754-4433 for information or to register.
News
