Debt Disasters

You’re not quite sure how it happened, but it seems like you are surrounded by debt. Every day it seems like more and more bills have been stuffed into your mailbox. How did your finances reach this point, and why? In order to answer this question, you are going to have to figure out some of the mistakes you made that you are paying for (or not paying for!) now.

Often, it’s nothing but a series of poor decisions and bad spending habits that have caused us to fall into the pit of debt disaster. We didn’t do this intentionally. It all just seemed to creep up on us somehow.

You thought you were being smart when you took advantage of the opportunity to transfer the balance on that high interest credit card that was eating you alive to a new card which boasted a low introductory interest rate. In most cases, this is a very good decision.

But, if you make the mistake of putting even more charges on the new credit card and/or neglect to pay off the balance in full before the introductory rate expires, you are going to be in for a nasty surprise when that interest rate jumps back up to its regular rate! You will have more debt now than you did before you transferred your balance! The only way this could work is if you transfer the original balance and then do not charge anything on the new card, and make certain that the balance on this card is paid off before the expiration of the introductory rate.

Another poor decision that can spell disaster is using your credit cards for little things like fast food meals, sodas, etc. when you have the cash in your pocket to pay for them! These small amounts can add up amazingly fast on your credit card, and unless you pay the balance in full every month, you will be paying interest on that hamburger and Coke! Use your cash or a debit card for these small purchases, but make sure you know how much your bank balance is. It won’t help you save a cent if you have to pay a $30 bounced check fee because you used your debit card and there wasn’t enough money in your account to cover the purchase!

About the worst thing you can do is be late in making your credit card payments each month. The fee that you have to pay every time this happens is money that could have gone toward the balance! Plus, depending on how late your payment is, your interest rate could triple!

Almost as bad as late payments is making minimum payments only. Even though the statement lists this option each month as a viable payment alternative, it benefits the credit card company and not you. Most of your payment goes toward the interest, with a small amount only applied to the principal each month. The best thing to do is to pay off each credit card balance as soon as you possibly can, preferably in full each month. This actually saves you money in the long run, as you will not be paying interest charges.

Debt disasters can be avoided with some careful decision making!

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