Is the reason why you’re struggling with debt because you simply can’t control your spending? This happens to many people – especially with credit cards. The problem with these little pieces of plastic is that they simply make it too easy to buy stuff. All you have to do is take a card out of your billfold, hand it to a clerk and presto! You’ve just instantly purchased that new HDTV or tablet you’ve been craving. It’s so intangible that you might not even feel as if you’d spent any money – that is until your credit card statements start rolling in.
What happens if you can’t pay off your balances?
If you’ve succeeded in running up your credit card bills to the point where you can’t pay off your balances each month and can make only the minimum payments, things can really spin out of control. The problem is what happens when this occurs. For the sake of an example, let’s say you owed $5,000 at an interest rate of 22% and that it continues to compound for 10 years. In this case that $5000 balance would cost you $44,235 over the course of those 10 years. If you are like the average American household and have $15,956 in credit card debts at an average rate of 12.83% and were to carry this for 40 years, you would ultimately pay $2,629,618.
Getting spending under control
If you don’t want to end up in debt hell because you can’t control spending, there are several things you could do to bring it under control. This includes:
- Cut up your credit cards
- Freeze your credit cards in a tub of water
- Pay cash
- Create a budget
- Find ways to reduce temptation
- Look for different sources of happiness
- Create new goals
- Set more realistic expectations
- Get credit counseling
All of the tips listed above require you to do something by yourself. This can prove very difficult for people who can’t control their spending. If this sounds like you, a better option might be consumer credit counseling. If you are not familiar with this it’s where you find a credit counseling agency or company for help. You might be able to find a credit-counseling agency right in your city or town or if not, you could go online and find one. The important thing is to choose a nonprofit as it will charge very little or nothing for its services. Also, make sure you choose a legitimate and reputable one. Unfortunately, there is a host of scam artists out there promoting various credit counseling scams that could leave you in worse shape than before you signed up for the counseling.
What to expect
If you choose credit counseling you will be assigned a debt adviser who will review all of your finances, including your income and your spending. He or she will provide tips and advice for getting your spending under control and will help you develop a budget – if you’ve been unable to do this yourself. In addition, your counselor will work with all of your creditors to get your interest rates reduced to make it easier for you to pay off your debts. He or she will help you create a debt management plan (DMP) for paying off those creditors and will then present it to them. If they all accept your plan, you will no longer have to pay them. Instead, you will send a check to the credit counseling agency and it will distribute the money to your creditors. It normally takes about five years to complete a debt management plan and become debt free.
The pros and cons
The biggest benefits of consumer credit are first, it doesn’t mean taking on any new debt and second, you will have just one monthly payment to make that should be dramatically lower than the sum of your current payments. When you have a debt management plan, it will stop all those annoying phone calls from your creditors or bill collectors. Plus, you will be supplied with educational tips and advice that could help you stay on your budget.
The downside of consumer credit counseling is that if you miss just one payment, you could see your debt management plan canceled. You will have to give up all of your credit cards and will be strongly urged to not take on any new revolving debt until you complete your DMP. You could find that your monthly payment was so steep you would have a hard time meeting it. And it might have a negative effect on your credit score, although there are experts who say it will and others who say it won’t.
The biggest obstacle
If you choose consumer credit counseling, it could definitely help you control spending but in the final analysis, it’s up to you. You will need to change the way you think about credit and money and break some of those old habits that have been causing you to overspend. Most spending is emotional. We spend money because it gives us an emotional high, because it helps us feel powerful, because we crave immediate gratification or because we’re trying to overcome past problems such as a poverty-stricken childhood. If you truly want to control your spending you have to ask yourself what are your emotional triggers. If you can identify them, this will go a long way towards helping you do better. All you would need to do before making a purchase is ask yourself, “Why am I buying this?” If it’s because it would just make you feel good you should go home, wait 24 hours and then ask yourself, “ do I really need to make that purchase or am I just trying to make myself feel better?” If the answer is that it would just make you feel good, don’t go back to the store and buy that item. Just remind yourself that it will be far better to keep that money in the bank rather than in the hands of that retailer.
Finally, here’s a video with a few other tips that could help you control your spending.