Living Credit Card To Credit Card: How To Break The Cycle

By Maxime Rieman

Most of us have heard financial experts decry the dangers of “living paycheck to paycheck,” wherein a person’s income is so close to their expenses every month that they’re unable to put any money aside for emergencies or retirement. Of course, these gurus are right to be concerned: saving is an important habit to get into because it is an important safety net and it allows us to build wealth.

So yeah, living paycheck to paycheck isn’t ideal.

But really, I think the personal finance professionals are barking up the wrong tree. They’re right to be concerned that a lot of us are failing to save, but living paycheck to paycheck isn’t the worst monetary state you can be in. As most of us who have been in serious financial trouble know, there is a much direr financial situation you can fall into: living credit card to credit card.

Yep, credit-card-to-credit-card living is about as bad as it can get. If you’ve never experienced this type of financial lifestyle, it goes something like this: you charge up a credit card to the point that it’s just about maxed out. You probably keep your head just above water by paying the minimums on the card every month, just to be sure your credit score stays solid enough that you can get another card. Which you do. Then you charge that card up, without ever paying the balance on the first card. Again, you keep up with monthly minimums, but pretty soon you need another card. And not long after that, you can’t keep up with the minimums on the two other cards, so you use the third card to pay the other two. But now you have no more available credit, so you need another card. And so on. And so on.

Many college graduates fall into this trap. They graduate totally broke – student loan bills, rent, a car payment, and a bunch of other expenses eat up their nonexistent paychecks. But they also don’t adjust their spending accordingly, and quickly open more credit cards first to accommodate their splurges, and then to pay off the other cards. Keep in mind, in the past--even just as recently as 2007--banks were still doling out credit as generously as those free lollipops. So for many graduates, it is—well was--really easy to keep getting new cards to bail themselves out of payments that were too high on the other cards, and, of course, gain a little spending money, too.

This cycle lasts for about a year, and by then most realize that they are drowning. This is when the stress begins: stressed out about money all the time; constantly concerned about missing a payment or worse, not having enough to even pay the minimums; and sweat-inducing nightmares. For those, who are experiencing this during the Great Recession, I can only imagine your feelings of helplessness and the perpetual state of fright you must be in.

The good news is that, you can turn things around. You can go from a total money-wreck to financially savvy with some stubborn resolve, sacrifice and the knowledge that it can be done; knowing that there is an end in sight can really help on those hard days. If you’re looking to break the cycle of credit card to credit card living, try a few of the tips below:

• Stop using the cards – This is probably the most important step you can take towards stopping the credit card madness. It will be painful and unpleasant, but you have to stop using your credit cards entirely, at least for a while. Freeze them, cut them up, give them to a trusted friend, whatever – just keep those cards out of your wallet and out of your hands for the time being.
• Don’t open any new cards – No matter how bad the credit card withdrawal symptoms get, resist the urge to open a new card. Even if you promise yourself you’ll be responsible with this one, just say no. At some point you may be in a financial place where credit cards won’t pose a threat, but that’s not now.
• Put yourself on a budget – One of the reasons you probably got into debt is that you failed to create a plan for your money, which is what a budget does. Figure out how much money you make every month, then make a list of all your expenses, including non-fixed monthly costs like gas and groceries. Decide how much you want to spend in each category, making sure to allocate a hefty amount to debt repayment. Then, stick to your plan!
• Also, put yourself on a cash allowance – Since you’re not using credit cards, you’ll need a way to manage your spending money. I recommend cash. Go to the ATM every Friday; take out your spending money for the week ahead. Not only does this reacquaint you with the value of money (cash is concrete, credit cards are abstract), when it the money is gone, it’s gone. This will keep you out of trouble!
• Increase your income – Once you’ve quit credit cards and set a budget, it’s time to get serious about debt payoff by increasing your income. Get a second job, baby sit, walk your neighbor’s dog, or find some other income stream. But just be sure you use the extra cash to pay off your debts – no shopping sprees allowed!

Breaking the credit-card-to-credit-card lifestyle is tough, but it is doable. Even after a month you’ll start to feel better. Keep your chin up and know that you’re working towards a brighter financial future!

Maxime Rieman is a writer for NerdWallet, a financial literacy site where you can find brokerage reviews, such as this TD Ameritrade Review, when you’re ready to start investing.

My College Credit Card Debt Mistake

Guest Post by Christine Kane

I have not had a credit card in over 10 years. I have chosen this path because I learned an important lesson at a young age. I was a freshman in College learning the ins and outs like how to sleep with your eyes open during lecture. When I wasn’t mastering this art form I was enjoying living the fine life with weekend road trips, new clothes, fine dining, parties and concerts.

Like most Colleges that first week of school when doe eyed freshman arrive, there are lot of on campus things to attend. Most colleges have a meeting where students can find new clubs, organizations and programs to become a part of. Roaming these halls are bankers and credit card givers.

I was approached by a charming fellow just a few years older than me. He offered me a credit card and I declined because I had heard from my family that is what I needed to do. After I said no, he persisted with his sales pitch of the credit card. Except, I didn’t realize it was sales pitch. These words that flowed from his mouth were music to my ears. Promises of low interest rate (what’s that? I had no idea), easy to use, use it for beer, books and gas. SOLD. I signed up and signed my credit score life away.

This little piece of plastic became my study, party and shopping buddy. I didn’t really know the limit or what would happen if the limit was exceeded. I didn’t know understand that paying the minimum wasn’t good. I had no idea, because no one told me.

6 months past and before I knew it I had accumulated almost 4,000 dollars of debt. Oops. What now? I panicked and when the card stopped working and the calls started coming, I did what any 18 year old girl does, I cried. I knew had to make that dreaded phone call home to explain that their scholarly daughter had in fact made a very uneducated financial move.

After a few lectures and a few ‘pull you out of school’ threats, we all calmed down. Thank goodness I was lucky to have parents that could afford to help me out of my mistake. They took the card and paid it off. I got job and to pay them back, plus interest, of course.

My advice to parents or young college students. Educate yourself on credit cards. Parents sit down with your child and explain the basics behind it. Students avoid the smooth talking men and pretty woman with shiny cards. Don’t ruin your credit like I did. And if you are in debt, don’t be afraid to ask for help from anyone whether they are your financial adviser or parent.


Author Bio:
Christine Kane from internet service providers, she is a graduate of Communication and Journalism. She enjoys writing about a wide-variety of subjects for different blogs. She can be reached via email at: Christi.Kane00 @ gmail.com.

Small business and credit cards

Guest Post by Carolyn Knight

It might seem like small businesses have no need for credit cards. They’re supposed to be making money, and they can always go out and get a loan so there’s no reason they would benefit from a credit card, right? That’s definitely not the case. Small businesses can benefit in all kinds of ways when they use credit cards the right way. If you’re on the fence about implementing credit cards in your small business read on to find out some of the advantages that will benefit you:

Best way to track spending

If you’re a business owner you know how hard it can be to consolidate your books at the end of the year. You have to go through all the receipts from your expenses for the year and match them up to make sure you aren’t leaving anything out. If you use a credit card for purchases the tracking will be quite simple. All you have to do is go through your prior statements and you’ll know exactly how much was spent and where. A credit card will make it easy to track your expenses throughout the year.

Rewards

Like consumer credit cards, you can often get some kind of reward for your purchases made on business credit cards. You can get everything from cash back to points to airline miles, depending on the card and your business needs. If you’re going to be spending money it only makes sense that you should get some of that back in the form of rewards. Business credit cards are the perfect way to get a return on the expenditures you’re going to make either way.

Track employee spending

Depending on your business, you might have employees that need to make purchases on a regular basis. If you get a business credit card you can have duplicates made for your employees and track how much they’re using the card. This will help you keep their spending under control, and it will also help you identify areas where your profits are being lost unnecessarily.

Build credit

If you’re just starting out in business it’s unlikely that you’ll have enough business credit to take out a significant loan. It’s hard to build credit if you can’t borrow, but you can achieve the same effect by using a business credit card. The barriers to entry for getting a credit card are much lower than they are with getting a big loan. Once you have your credit built up you will be able to get money in loans much easier.

Businesses can benefit from credit cards just as much as consumers. You should consider getting a credit card for your business if it would help any of the areas above.



Author Bio:
Carolyn is a guest writer on the topics of business and credit cards. She is also an expert on order management software that works with Shopify, 3dcart, and BigCommerce.

Paying Medical Bills with Credit Cards, is it a Smart Choice?

Guest Post by Eliza Morgan

Those who really fear credit card debt are usually cautious when it comes to making future purchases. For example, if a couple knows they want a new TV for the living room, they'll usually save for a few months and then pay for a new TV with cash. But not everything can be so calculated, especially when it comes to your health.

Sometimes you get sick out of nowhere, and even if you're insured, getting billed for medical expenses is one of the easiest ways for someone to get into debt (or deeper debt). Think about it: one single trip to the emergency room can set you back $200 for someone with insurance. If this was an unexpected expense and you don’t have enough money in your account, what will you do? Charge it on your credit card. Depending on how quickly you can pay it back will determine how much interest you will accumulate. In fact, according to the most recent statistics, nearly 21 million Americans accrued credit card debt in 2008 due to using their cards to pay for medical bills. While health is important and unpredictable, there are some things you should consider first before using your credit card to seek temporary relief.


1. Negotiate with your Doctor/Hospital. First things first, it's always important that you speak up front that you may not be able to afford whatever procedure or test that the physician says you need. If it's an emergency situation the physician will go ahead and do the procedure, but they will be more willing to give you a discounted rate or work out some sort of payment plan (some charge interest; others do not). Either case, you are not obligated to pay any sort of out-of-pocket expenses up front so don’t be too tempted to put it on your credit card immediately. But if you discuss your financial situation from the beginning, the physician may be able to reduce your bill in some area, whether it's with the anesthesiologist if you've had surgery or with your medications.

2. Know who is more likely to Report to Credit Bureaus. If you put your medical bills on your credit card and then can't find a way to pay off your credit card bill, you will undoubtedly be contacted by a bill collector. From there, the appropriate crediting bureaus will be notified as well and your discrepancy will negatively be placed on your credit report and affect your credit score. While you do in fact want to pay off your medical bills at sometime, it's important to know that rarely do physicians and hospitals actually report to collection agencies (as opposed to credit card companies that do it almost immediately). In fact, various sources say that only.07% of medical businesses actually report their patients to bureaus. Most just write off any losses.

3. Get a Health Savings Account. Lastly, a great way to be better prepared for these kinds of unexpected medical expenses to acquire a health savings account (HSA). Most health insurance companies require a high deductible (about $1,500 for a single) to establish one through your plan but they can really be a life saver and help you be debt free. How it works: a portion of your paycheck (prior to taxes) is put into your HSA each month. You can build the money in your account tax free as well. You are then issued a debit card and can use that card strictly for paying for medical expenses, such as when paying off co-pays, medications, and remaining balances you may have on a surgery. It takes out the temptation of using a small portion of your savings for something other than medical uses. Your balance moves from year to year and works as an IRA after 65, so it can be invested.

Author Bio:
Eliza Morgan is a full time blogger. She specializes in writing about business credit cards. You can reach her at: elizamorgan856 at gmail dot com.

How to Avoid Overspending on Your Credit Card

Guest Post By Andrew Black

Your credit card debt could be piling up by now if you are into overspending. It is becoming a common problem these days as the number of so-called shopaholic people increases. Moreover, modern society has obviously made it very easy to spend much more than you should. It is about time you start aiming to clear your rising credit card debts.

If you want to obtain peace of mind, you should aim to curtail, control, and eliminate overspending. In reality, it could be harder than you think. Most of the time, consumers fail to resist the urge to spend according to their means. Overspending is a problem that leads to more financial problems. Thus, it would be best if you would observe the following tips on how to avoid it.

Prevent impulsive spending

Spending on impulse could be a habit. It is one of the main reasons cited for consumers’ overspending activities. To prevent it, try to reflect prior to buying any item. If you like to buy anything you see in a retail shop, try not to make a purchase right away. Instead, wait for a day before you actually decide to buy it. Doing so would enable you to rethink the proposition to buy and possibly find other items that could be comparatively better.

Do not go to places where there are numerous temptations to buy. Overspending is common to consumers who frequent shopping centres and retail shops. If you go to such places to overcome boredom, try to find other venues to do so. Likewise, try not to spend your lunch break strolling around retail shops. How about hanging out in a garden or a park where there could be less temptation to spend anything?

Live within a strict budget

If overspending is your problem, set a specific budget per week. Intend not to spend beyond this allocation no matter what happens. Furthermore, make sure your weekly budget is in cash, which is much easier to monitor. Keep your credit cards in a secured place and do not bring it whenever you go out so as not to face the urge to spend unnecessarily.

It would also help if you would know how much you spend. Be conscious when you buy small or relatively cheap items. For instance, do not buy coffee as frequently as you do. Review your bank accounts, payables, and credit card bills so you would determine how much you spend within a particular period. Also try to look at different types of items you purchase.

Set objectives when shopping

You could effectively avoid overspending if you would set clear objectives prior to shopping. Buy items because you really need them, not because you want them. Before deciding to purchase anything, think more than twice whether you would go on and complete the purchase. Do not try to look closer at things that do not fall within your shopping objectives.

Lastly, you could curtail overspending by avoiding spending by habit. Review your own habitual spending pattern. This way, you could determine whether you tend to buy things based on necessity or simply based on your habit. Try to find other recreational activities that would take most of your idle time from habitual spending.

Andrew has been working in the finance industry helping people to consolidate credit card debts. Andrew now likes to share advice on how to avoid debt.

Eliminate Credit Card Debt, The Beginning

Let me set the scene and see if this is familiar to anyone out there.

November 1997, I was set to retire from the US Navy in Sept of 1998.

I had about $26,000 of unsecured debt (credit card debt). Every time I was transferred from one base to the next over the years our debt would increase by about $2-3,000.

We were making all of our payments on time, but it was like treading water we never gained on our debts and the biggest expense we had were our three lovely kids, ages 1, 4, and 8.

Did any of the previous sound familiar?

At this point we decided that we had to see what help was available to try and work our way out from under debt load. The most common group specializing in this type of assistance at the time was the Consumer Credit Counseling Service, a non-profit group that had offices across the USA. This is still one of the best groups out there.

The Consumer Credit Counseling Service in 1997 required one-on-one counseling and a budget set up with a counselor. I was arrogant enough to think that I didn't need any face time with a counselor. I wanted a group that was easy to use but I didn't want them to get personal with me. I knew I was going to have to stop the use of my credit cards and start taking a bite out of the debt crunch.

I used the internet to research alternatives and came up with Debt Counselors of America now called Myvesta. This was a non-profit group that would negotiate a lower interest rate with the various credit card companies on our behalf (this group doesn't seem to do this any more but does have great info on the topic). The only catch was everything had to be paid through them.

My credit card interest rates went from 21%-0%, 18%-10%, 18%-6%, 18-4% and 16%-16%. My largest debt on a single card was the Discover card which went for 21%-0%.

The only credit card I didn't place under the program was the one from my credit union. I have a good history with them, a reasonable rate and I didn't know how using the program would effect my credit rating. I wanted one avenue that was free of any possible problems. The card was at its limit and wouldn't be going down too fast since the other cards are the priority. But this card was listed as off limits by my wife and I.

Well this was the beginning. Later I'll explain what difficulties we ran into and how this effected our life.