During my initial encounter with credit cards, there was this one time when I was at my wit's end to see the big numbers on my credit card bill. I immediately scanned the detailed expenditure report and wasn't able to find anything odd - grocery, petrol, rent, a few restaurant bills, a bit of shopping here and there - the usual. That's when I realized that I was overspending.
I was a young individual, just starting my adult life. I wasn't particularly wealthy and was running on a tight budget. However, the moment I got a credit card, I developed a tendency to be frugal. The expenditures were the on the same things as before, but much more in amount. I was spending much more than I could afford.
If you are a spendthrift young adult, you might be able to relate to my situation. Most credit card newbies fall into debt as they couldn't don't manage to pay off their balance on time. These tips might help you climb out of the debt if you are dealing with a high credit card balance.
A high credit balance should be your wake-up call and you must realize that you are indeed overspending. Maybe you don't yet understand the how credit cards actually work, or maybe the idea of the available 'free money' tempts you to spend a lot. What initially comes off as a few swipes here and there, might later become a heavy burden on your pocket. It is imperative that you inspect your spendings, find the culprit and tackle it. Here are two of the most common culprits:
You are probably sending too much without realizing it. It's a natural tendency for most first-time credit card users - it tempts you to spend more than what you would have spent with cash. Identify those unnecessary spendings and curb them.
Well, adult life is expensive - rent, electricity, groceries, utility, insurance, fuel, medical bills, phone bill, internet - you need to pay for innumerable things. As a novice, you might not be earning a lot and it's natural to falter at times. You could consider these strategies to plan your finances well.
try to reduce your bills - go for a lower plan for internet and phone services
cut down on rent - consider a cheaper accommodation
avoid eating out at expensive places
use public transport more than cabs
try to take up a part-time job or a freelance project if time permits
Don't freak out and run for cover. Never ignore a debt. It could severely damage your credit history and you might a long time to recover from it. Assess the damage, how much ever scary that might be. List your balances, your minimum payment amount and your interest rates for every debt. Get a clear vision of your current standing. Plan accordingly. This will give you a good start. Don’t panic.
After you note down your credit card balances, interest rates and narrowed down to the cause of debt, it’s time for you to take action.
Start paying off the debt. Carrying a large balance can adversely affect your credit utilization rate as well as your credit score. You could follow the 'Debt Avalanche' method and pay a high-interest debt first, followed by a minimum interest on the rest; this helps you save some money. Or you could opt for the 'Debt Snowball' method wherein you start with paying off the smallest balance amount first while paying the minimum on the remaining balance; this keeps you motivated as you feel that you're steadily progressing on your debt.
If your debt is too much and you are helplessly in need of money, you could consider taking a personal loan or apply for a balance transfer card to help settle a high-interest debt.
Henceforth, develop the habit of not exceeding 30% of your credit limit and pay off the entire balance within the due date of your billing cycle. It will keep you safe and away from possible debts.
Using credit cards can be an adventurous experience. Mistakes like this are quite common when you're embarking on a new adventure. Don't get worked up. You'll learn a lot as you credit age increases. With age comes experience; with experience comes wisdom. Just be careful, follow a few ground rules and keep yourself safe during the initial days of confusion.