Credit card debt relief is something that became popular only a few years ago. Before the Great Recession, nobody really thought about getting serious about their card payments. In fact, a lot of consumers seem content with paying the minimum payment requirement on their billing statement.
It was actually not so bad – at least, as long as consumers had a steady income pouring in. But when jobs were compromised when the economy crashed, the credit card payments suddenly became quite a burden. A lot of people struggled to finance their basic needs and ended up skipping on their debt payments. Of course, skipping on payments of credit cards is the worst reaction. Not only will your balance grow because of the accruing interest, your credit score will also suffer. It will hinder you from pursuing financial transactions that could have improved your personal finances.
But although credit card debt caused the downfall of various households in recent years, the increasing balance of consumers can actually indicate something good.
The positive and negative side of the consumer credit card balance
The growing credit card balance of consumers is a good indication that people are more confident to use credit. This is probably because more people have jobs now. According to the study done by CardHub.com, nearly 3 million jobs were created in 2014 and that caused the unemployment rate to go down to 5.6%. This is considered to be the lowest level for the past 6 years. This means more people have a steady source of income to finance their needs. The positive side of the growing card debt is that people have a higher financial confidence.
Since the US economy is 70% dependent on consumer spending, this boost in credit spending is actually good news. It is an indication of the strengthening economy.
But despite the positive side of this type of debt, it still comes with a lot of negative vibe for consumer finances. Your credit card balance, no matter how much it screams confidence in the economy can still be destructive. At least, it can be true if you do not know how to manage your debt. According to the study of Card Hub, 2014 alone added $57 billion credit card debt – which is an increase of 47% compared to that of 2013. The average credit card balance per household is at $7,200 by the end of 2014. This is a huge amount for a household to carry.
On its own, that balance is nothing to worry about. But if you factor in the other household debts like mortgages, auto loans or student loans, the total becomes unbearable. If you also consider the high interest rate of credit cards, you know that one financial crisis could wipe you out for good.
The thing about the improving economy is that we are lulled into a sense of sustainable spending habits. According to an article published on CNN.com, this February alone, 295,000 jobs were added. However, the article also cautions that people should not concentrate on job growth alone. Although unemployment have improved a lot since the Great Recession, they should also monitor the wages that workers are getting. Despite the increasing number of employment, the wages only got a 2% increase. The article explained that in a healthy economy, the wage increase should be between 3.5% to 4%.
With this in mind, you should know that a new job should never be a reason for you increase your credit card spending. Although you may have more capabilities to pay it off, it does note mean you should increase your debt too.
How to practice proper credit card management
The key to get the balance between the good and bad side of the rising credit card debt is to practice proper management of your debts.
There are many tips to help you with credit management. According to an article published on USAToday.com, financially successful people use fewer credit cards. Not only that, they also make it a habit to pay their balance in full at the end of each month. They do not let any balance carry over the next month because they know that they will be forced to pay charges and an interest will accrue on their balance. Not only do they pay in full, they also pay on time. They use reward cards to help them save and they also monitor their credit score. These habits help these successful people stay ahead of their debts.
If you want to be a smart credit card user, you need to start implementing what the successful people are doing. Their financial success is evidence that they are doing something right. And beyond that here are other things that you may want to do.
- Budget your credit card spending. If you want to manage your money – whether that is your income or expenses, you need to budget plan. You want to make sure that your monthly financial resources will be used according to what your life needs. If you need to use your credit card in order to maintain a good credit score, make sure that it is included in your budget. For instance, you will allot $100 worth of credit card spending. You set aside this amount so that you can pay your card statement at the end of each month. Do not spend beyond this amount so you will always be able to pay your balance at the end of each month.
- Track where your money goes. This is another part of your budget plan. But we will discuss it separately. It is important for you to track your spending because you want to make sure that it is done towards what is necessary. It does not mean you will stop having fun. What you want to do is to get rid of the unnecessary expenses that you just spend on because of peer pressure or as dictated by society. You want to concentrate only on what is important to you. That way, you can limit the expenses that you will make each month – especially those that will be done through your credit card.
- Try to save by earning rewards. This is the best way to gain something from your credit card spending. If you have to use a card, use it in such a way that you will gain a reward. These rewards can be freebies, discounts, special promotions, etc. Take advantage of these so you can get something out of the debt that you are making.
Remember that your credit card use does not always have to lead to debt. There are a lot of people who have come out of the Great Recession without a scratch simply because they knew how to use their credit cards well. In fact, they were able to survive because they practiced proper credit management.
It is important to understand that it is not the credit card’s fault if you suffered financially in the past. It was your own habits that led you to your financial demise. You can continue to use your card but make sure that you use it wisely. Do not let the balance overflow without knowing how you will pay it back. A good rule is, if you cannot pay for it in cash, then do not buy it. Use your credit card just to keep your credit score high – but have the financial resources to always pay it back.