The 3 Rules to Eliminate Credit Card Debt
Imagine you allowed a thief into your house. You gave them a key and free access to everything. You also show them where the valuables are and give them the chains to lock you up. How long do you think it will take before you will live in an empty house? Not very long. If you don’t know how credit cards work, they can become the thieves in your wallet. You give them full access to all your accounts – the capital, the interest and the savings – and they will steal your financial progress. But this doesn’t have to be the case. Are you currently concerned about your credit card debt? Do you feel like you are drowning in credit card debt? This lesson will assist you to take back control; to send that thief on his way; to unlock the chains and to eliminate credit card debt forever.
The 3 Rules to Eliminate Credit Card debt are:
- Rule #1: Understand it
- Rule #2: Control yourself
- Rule #3: Control it
Rule #1: Understand it
The first rule is to understand credit cards. People often tell you that they are evil and you should not even have them. This is plainly not true. Credit cards simply have advantages and disadvantages. You should be aware of them both, and use them in your favour:
- They can help you out when you are in need, especially if you are just starting out.
- You can travel internationally and have access to money without carrying cash.
- If you pay extra, you can increase your credit limit, thus creating a safety net.
- You can purchase things online and save on travel and acquisition costs.
- Some online vendors only cater for credit cards – having one will help.
- If you travel, some cards offer insurance and benefits on your travel.
- You can get rewarded through loyalty programs.
- You can keep detailed track of your expenses.
- They can help you build a credit history.
- You can control them.
- They can control you.
- It super easy to spend.
- It takes more discipline to manage.
- It is easy to spend money you don’t have.
- It can take months or even years to free you from their claws.
- It makes you believe that you have money which you don’t actually have.
Common credit card mistakes:
- Credit cards make you believe that you have money which you don’t have.
- They also make you believe that you can afford what you are purchasing because
- you tend to ignore the amount you spend and
- you tend to ignore the amount you will pay after interest and
- you tend to only look at the monthly payment which you have to make.
The biggest mistake you can make is to only look at your monthly payment. Don’t convince yourself that this payment is something which you can afford. The issue is NOT the affordability. The issue is that you are convincing yourself that you can buy something for which you don’t actually have the money.
Instead of making the common mistakes, rather spend your time refining your values, which should include financial freedom. Spend the time convincing yourself that you choose financial freedom over financial pain.
Why do institutions give them to you:
- They have to make money.
- They have to reach their lending targets.
People who don’t know how credit cards work help lending institutions to achieve both 1 and 2.
So how do credit cards work?
Basically, lending institutions allow you to have access to money which you don’t actually have. They do this because they need to make money. In exchange you get to use money which you don’t actually have, pay the lending institutions back their own money, and pay them extra-high interest and fees. This is how you become poorer.
If you pay regularly, on-time and pay more than your monthly required payments, they will give you access to more money which you don’t have. This will allow you to get further into debt and help them to make even more money. This is how lending institutions make money, and this is how you lose money, become even more in debt and stay trapped – unless you take control!
Rule #2: Control yourself
Credit cards by themselves don’t go out there and create havoc. They require some help – a person. The problem is not the credit card(s). The problem is the person who has not learnt how to control themselves. Blaming the cards for the situation does not help. Blaming the institutions for this situation does not help. Taking responsibility for your situation does. Making changes to your behavior does. Learning how to control, reduce and eliminate credit card debt does. If you want the situation to change, it will be up to you to make those changes.
How to control yourself:
Some people find the temptation to use their credit cards too much. They use the cards to buy things which they cannot pay for in cash. If you are one of those people, here are some suggestions:
Define your values. When financial freedom is a very high and important value, you will make better choices and take a different course of action. This course of action will help you to choose financial freedom over financial turmoil. Be sure to consciously choose this.
Remind yourself that eliminating credit card debt will give you back monthly cash-flow. When you don’t have debts to pay, you can use this money instead to make investments. This by itself is a huge mental step of progress. It feels good and it is good!
Set up a reward for yourself. When you have paid off a credit card, you will have more monthly cash. When you have paid this card off, do reward yourself with that cash the first month. Buy something small but rewarding. Congratulate yourself on the progress.
Be sure to read the 7 Steps to Financial Freedom. It will help you to see the bigger picture.
If you cannot control your ability to spend on cards, lock them away. If you still access them when they are locked away, give them to someone else – whom you highly trust – to hold. Tell them they may only give it back to you once you can prove that they have been paid off. If you still are able to get access to the credit card and still spend on it, then you may have to cut them up and eliminate the temptation to use them altogether. If you still struggle – ask for help. There are many people and institutions that will help you to get out of the chains of the credit card.
If you have mastered the ability to control yourself, and spend when you actually have the cash, you won’t have to apply rule number three. However, if you have mastered rule numbers one and two, but are currently still in credit card debt, then you have to learn and apply rule number three:
Rule #3: Control it
Ok, so if you are reading this it is likely that you have been unable to control your credit cards, have acquired some (or what may seem like an insurmountable amount of) debt, and wish to learn how to control it. First things first:
There is nothing to be ashamed of, you simply did not know the rules, and you are here to learn them. Well done for taking that step!
How to control your credit card debt:
1. Get the facts:
Get each credit card you have and write down the following details:
- The card name if you have multiple cards.
- The limit of how much you are able to spend on each card.
- The current balance of how much you have already spent on each card.
- The interest rate on each card.
- Your monthly minimum payment amount on each card.
- Be exact. The more specific you are, the better – even to the last cent.
2. Organize them
- Sort by highest balance, or
- Sort by highest interest rate
3. Make a choice:
Pay off the lowest balance first. The benefit of this is that you will feel like you are making the quickest progress. Once this card is paid off, you can use the money that you would have paid to this card, and add the amount to the next card in line, which reduces the time required to pay off the next card.
Pay off the highest balance card first. The main benefit of this approach is that the highest balance card usually has the highest monthly payment. When you pay this one off first, you get back the most amount of cash. This “extra” cash can then be applied to the other cards to pay them off more aggressively, or to apply this to ease your financial pressures and monthly commitments.
Pay of the highest interest rate first. The benefit of this approach is that you will save the most amount of interest.
Ask for help. If you are already financially over-committed, you may need to visit a financial adviser to see if you can make any adjustments which you have not considered. If the financial adviser is unable to help you in your current situation, you may need to call in the services of a debt counselor to be able to assist you with this in a professional manner.
4. Take action:
Pay extra on the card of your choice above. When you pay more than what your minimum payment requirements are per month, you reduce the interest you owe the lending institution. You will also reduce your balance sooner, which saves you money due to interest. If you have any extra monthly cash, throw it at your credit card balance.
Do what you said you would do. The only way to change your situation is to commit and to apply yourself until the situation is resolved – and not before. Some of the main reasons why people fail are mainly because they do not do what they said they would, or did not pay when they said they would, or did not pay the amount they said they would. You cannot afford to be that person. The only way to change your situation is to commit and to relentlessly execute your actions. It may not be simple, and it may not be easy – but is sure works! Do what works.
Contact the lending institution and find out if you can get a reduced interest rate. They can say no. That is okay. They can also say yes – which is even better. But they will not make any changes if you do not contact them.
Credit cards have their unique place in your wealth creating arsenal. The key is to understand them, and to be able to control yourself and your cards. Credit cards are not an evil. They are simply a tool which you can use. The key is to use the cards as you choose, while not allowing them to be seen as “money which you have.” Release that thief, and take back your financial freedom!
What you can do:
- Read this article again so that you understand credit cards better.
- Spend more time on creating your values. Be sure to include being debt free.
- Follow the 3 rules: Understand it. Control yourself. Control your cards.
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- Article by Christo van Zyl
- Write a comment below if this helped you. I appreciate and evaluate all feedback.