The good news is that our retail season looks like it was pretty good, so that’s good news for our retailers; but now those credit cards are overweight. We need to address it—it’s not going to go away by ignoring it. We need to slim down.
The first thing you need to do is collect all of your statements. That’s easy to do now that most of them are online. Sit down (either do this with pen and paper or do it with a spreadsheet) and list every account and its balance. List the interest rates, and you’re going to have to look for those interest rates. You’re going to be shocked. The average is about 15%. And list the minimum payment for each of those accounts.
Then you need to ask the question: How much can I afford out of my budget to apply to those cards each month? What you want to do is pay the minimum on every card except for one. You load up the extra amount on that one card. You can start with the small balances, because that will give you that sense of accomplishment by getting rid of those account balances. But you also want to pay attention to those very high interest charges. Get rid of them next. Just work on one card at a time. If you’ve done this for years of overindulgence, then just be patient. It may take you a few years to correct it. If it’s just been the holidays that you’ve overindulged and done a little too much on Christmas, you should be able to clear this out in about 3 – 4 months. If you fall off the wagon, just get back on.
The key to a financially healthy you is to get rid of credit card debt, because you’re not going to be able to save and invest unless you address that first.
Credit card companies count on us paying only the minimum, so you need to pay more than that to even make a dent in those charges. You have to pay the minimum so that you don’t mess up your credit history. Then, just stack the extra money that you have out of your monthly budget on one card at a time. When you get rid of that, go to the next card.
At least once a year you need to pull out those cards. The goal is to pay off your credit card balance in full every month, but most people can’t do that. So if you have those times where you’ve built up balances, just sit down and don’t ignore it, don’t hope that it goes away, and address the issue.