When you are trying to save money, managing your credit cards is one of the most important skills to learn. It is very easy to get in to debt with lenders seemingly falling over themselves to give you money. The problem is that the more you borrow, the less you can spend. When you begin to receive credit, it can feel as though your spending power has increased. This is a very misleading feeling because using credit actually limits your spending in the long term.
The Downward Spiral
When people first use a credit card, they often believe that they will always pay off the balance before the end of the month, which means they will never pay interest on their purchases. This is an idealistic view, but one that many people have when they first begin a credit agreement with the ‘just in case’ mentality. The real problems begin when you begin spending on the card on a regular basis, but not clearing the balance at the end of the month.
Change in Thought Process
At some point, you make the decision to spend your wages before you have them. This is not usually a conscious decision, but recognizing the moment will save you a lot of money. The moment the bulk of your wages are committed to clearing your credit balance, you have changed your spending power. The accumulation of interest charges will reduce the amount you can spend every month. This is the inevitability of using your available credit.
Ever Decreasing Circles
You have less spending ability when you are paying an amount of your earnings every month to service a credit card agreement. In this situation, there is always the temptation to obtain more credit, especially when you feel there are essential purchases to make. As soon as you recognize any of these traits in your monthly finances, you need to act.
A lifestyle Change
Changing your lifestyle is sometimes hard to accept, but it is the first step to improving your finances. Reducing your credit card balances should be top of your priorities. This is usually your most expensive debt to service. You should always remove your most expensive debt first, even if it means replacing it with less expensive debt in the form of a loan.
The Best Options for Replacing Expensive Debt
This will really depend on the level of debt you need to reduce. Transferring all of your debt on to one credit card that offers zero interest on balance transfers is the best option. This will instantly remove any dead money from your budget each month. By dead money, I mean money paid for interest; it provides nothing tangible. If you cannot transfer all of your debts on to an interest free credit card, a cheap loan is the next best thing.
Comparing a Loan with a Credit Card
The math works out quite easily when you take the time to study it. Whether it’s Dollars or Pounds, Yen or Rupees, interest will cripple you over time. A credit card debt (with an APR of 15%) of $4,400.00 over three years will result in $1,090.00 in interest alone. The same amount of credit with a loan at six percent would cost $418.00. This results in a massive $672.00 of total savings over the period of debt.
A Strict Regime of Austerity
Maintaining a frugal attitude can be difficult when your debt starts to lower. It is easy to forget that you have more spending power when you have no debt. It is important to have a plan in place and set targets to become debt free and you will find that finding financial freedom is as much a habit as getting in to debt.
Maximizing Income from Alternative Sources
When you are analyzing your finances, you should look to reduce any unnecessary expenditure. Most people have one or two monthly expenses that they rarely use or could be considered an unnecessary luxury. At first, you should look at expenses that are of little or no use to you. You should check whether your payment protection for your credit agreements is suitable. This is important for any PPI plans you have had in the past as well as those still running.
Claim Back Mis-Sold PPI
If any of your payment protection policies have been mis-sold because they were unsuitable for your situation, you could be owed thousands. You could still be paying a large portion of your monthly credit card payments every month towards PPI that you may not be able to use.
If your payment protection was not fully explained to you when you signed the agreement, you may have a valid claim. As always, you should seek professional advice if you want to Reclaim PPI to find out the best options available.