Living a completely debt-free life is relatively impossible because it's common to finance expensive, necessary purchases, such as a vehicle or home. However, items purchased with a credit card are often unnecessary and therefore considered bad debts. Bad debts can reduce your savings and bring down your credit score. However, with better credit habits, you can get rid of bad debt and improve your finances.
Cash vs Credit
Credit cards are a welcome mat when short on cash. However, substituting cash with credit to buy clothes or dine out creates financial and debt problems. Rather than think of a credit credit as a backup plan to cash flow problems, put off unnecessary spending until you're able to save for a purchase. Moreover, forgo buying items you can't afford. Make sure you're household expenses are paid first and be sure to put cash in savings each month.
Monthly Payments
Credit card companies rarely ask for huge minimum payments each month. Thus you can quickly get into a routine of sending $20 or $30 payments monthly. However, small payments will not reduce the debt on a credit card with a $1,000 balance or more, especially if you continually use the credit card. Tackling bad debt doesn't only involve curtailing credit card use; you've got to put a lump sum toward your debts each month. Doubling or tripling monthly payments can make a significant impact.
Talking With Creditors
Negotiating can work to your advantage when eliminating bad debt. Several things can work against you, such as a high interest rate on your credit card. When you make a payment each month, creditors take a certain percentage of that monthly payment and use that money to reduce the interest charged during the previous month. For example, if you send $20 a month, the creditor may apply $13 to the interest and $7 to your principal balance. Thus it can take years to eliminate larger debts. However, by negotiating with creditors, you can get your interest rate slashed or temporarily eliminated and pay off the principal faster.
Review Present Income
In reality, your present income may not be enough to eliminate bad debt, wherein you're caught in a cycle of using credit cards to survive. There are two ways to approach this. You can either accept your lot in life and struggle with credit card debt, or you can get creative, sacrifice your free time and look for ways to bring in additional money. This might involve reentering the job market and finding a better paying job, starting a home-based business or working nights and weekends to earn more each week.
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