Get your finances back on track fast!
You spent far more on Christmas presents than you'd planned to. Boxing Day sales were irresistible. After the stress of all that excess spending and the deep freeze of an early winter you felt deserving. So, you took advantage of the seat sale to an all-inclusive destination in the sun. Now, how do you pay for all of that? As a life coach, I have a few important tips.
- It's Tempting … Fate: Credit card companies entice you to use your card by offering points that can be traded for travel, merchandise or services— at some point in the distant future once you have accumulated enough. You feel justified since you're earning something every time you "charge it!" Deferring payment by charging purchases is fine if you can pay off your monthly bills in their entirety, but sometimes you can't.
- Awareness Is Key. Wake Up: Credit card companies are counting on you to slip up. Once you do—ka-ching—they start making money. The less you pay, the more they make. That's why your minimum payment is so low. Interest is calculated way back to the day of your first purchase of this particular billing period NOT from the day after your payment is due. It is calculated daily at a rate of approximately 18% (depending on your card) and compounded—interest upon interest. It doesn’t feel legal, but it is. They've got you! You're on a downward spiral to an early financial grave if you don't immediately work to pay back what you owe and clean your slate.
- More Than The Minimum: If you can't pay off your entire balance at least make more than the minimum payment. That minimum payment isn't even going to cover your interest. You will be charged interest on your interest daily, and that's way too much math to try and figure out for someone who spend more than they made last month. Pay as much as you can. Pay it ALL as soon as you can and draw in money from other sources if you can. If you have more than one card consider consolidating your debts. Take out a line of credit, or a short-term bank loan, as these are available at a far lower interest rate. Even borrow from a friend or family member if you can with an agreement to pay them back with interest, making it a win/win situation.
- Ask For Help: Consult with your creditor while you're still in good standing with them. Express your intention to pay off your bill. Ask them to help you work out a payment plan. Ask about changing your payment due date if that will make it easier for you in relation to your pay periods. Ask about a reduction in interest rates; this possibility is not advertised, but it's been known to happen. Although Credit card companies make money when you don't pay your bill, their customer service representatives are salaried employees and their job is to keep you as happy as they can so that you remain their customer/consumer. Nice people generally love to help out other nice people. If you don't get satisfaction from speaking to your creditor, there are other people waiting to help you. Contact the Canadian Association of Independent Credit Counselling Agencies (AICCCA in the USA) for free financial guidance. Speak to your banker about options (i.e. consolidation—as mentioned above). Speak to a financial consultant—someone who can guide you to reduce spending and maximize on your earnings.
- Hindsight Is 20/20: Okay, so now you've had your first glimpse at potential financial disaster and you've woken up a little bit. It's time to tighten your belt after all that seasonal gluttony and make wiser choices next time. Start by spending less, certainly less than you earn, and put those extra few bucks toward paying off this most recent mistake. Keep track to see where your money goes and rethink your priorities. Make different choices. Do you really need a daily coffee that takes more than six words to order (with extra whip) or can you take your caffeine straight up? Be proud of the money and the calories you're saving.
- Education Is The Best Defense: There are plenty of resources available to help you have a brighter financial future. Many of them are in the library, so you don't even have to buy them. There are free tutorials, webinars and other offers on the Internet. I recommend checking out Suze Orman, a Personal Financial Guru, who, after being made famous by Oprah, now has her own television show and website with plenty of books and audio resources available to help get you on your way to being debt free.
Now that you know what to do, you should have that debt under control by the time summer, the other high spending season, rolls around. By then, you'll be able to "charge it!" more wisely.