Make a change of attitude. Recognize that credit is not a source of income. A “convenience check” is not a paycheck. Too often people use their credit as income. They think if they have $10,000 limit, they have $10,000 more in available income. Come to terms with the fact that using credit is spending money that won’t be replenished and has to be paid back - not by some unknown entity but by you. Using credit also means spending money that costs money - sometimes a lot of money.
Make your payments on time. Most people are generally aware of when their bills are due. If you need to become more organized for this to happen, then do so. (See the January 2007 edition of Defeat Debt for ideas about organizing your financial records-you can find it on our website.)
We can not over emphasize the importance of paying your debts on time. First, when reported accurately on your credit report, a solid repayment history is used to calculate your credit score making up 35% of the final score. Second, a poor payment history will cost you money - not only in late fees and charges but also in increased interest rates on both current and future credit accounts.
If you are trying to get out of debt, stop using credit cards. It is a cycle that has to be stopped. The cycle usually works like this: you want or need to make a purchase that you can not pay for outright. You use your credit card. When payment comes due you make the minimum payment. Interest accrues. The next month the balance is higher and you make another minimum payment. You use the card again. Now not only the balance is higher but so is the minimum payment. Oops, you’re late with a payment - late charge, interest rate increase and now the balance skyrockets. Stop the madness, now. If you’re trying to reduce your debt, stop using the cards. Keep making payments on time and you will see results.
Create a plan of action to guide your financial efforts. What’s your goal? Reducing your debt? Saving for college or retirement? All of the above? Knowing where you’re going or what you’d like to achieve makes your financial efforts more effective and helps guide your credit and debt choices as you move forward.
Create and use a realistic budget. Use your plan of action to help you design your budget, including setting aside funds for debt reduction and savings. Stop thinking about your budget as a financial diet (yuck!) and never use your budget as a financial bat to beat yourself up with when you strike out (One strike out does not end the game.). Think of your budget as a financial map that guides you in the direction you need to go to fulfill your plan. If you encounter a surprise detour readjust your map, don’t give up. Go back to your original plan and budget, make the adjustments needed and then - move forward again.
