Step #2: Pay off your credit card
One idea is
to cut up your credit cards and just use debit cards to
this. Only run a credit card debt in the case of a dire
emergency. It is not worth the high interest rates to run up a
credit card bill just for fun. The high rate of interest on the
credit card and mean less money and less fun in
Perhaps the most important step for anyone trying to reduce debt and eventually completely get out of debt, is to pay off your credit card or credit cards. Credit cards are often the highest interest rate debt most people have. If your credit card is the highest rate debt your have, try to pay this off first. Any other investment return will often be small compared to high interest rate credit card debt. After you pay off your credit card, then you must try to NEVER run a credit card debt again.
There are advantages to credit cards. Credit cards are terribly convenient. Many credit cards offer rebates, airline points, hotel points, or even merchandise. This makes them very tempting and easy to use. The key is to look at the credit card as if it is cash. This takes discipline, but you must not spend money that you donít have. Never look at a credit card as a loan. Credit cards are not good loans, they are good methods of payment.
Often people will use a credit card because an item is on a really good sale and they donít have the cash now. The problem here is that the credit card interest rate will quickly raise the overall cost you pay for the item long term. If the credit card interest rate is in the 15-20% range (which many are after the initial low rate period), then any good deal you got is quickly eaten up by the high credit card interest rate.
However, with some
monetary self-control, you can plan and pay off your credit cards every
month. Then you can get credit cards that will actually work as
a source of income for you rather than a loss of income. You can get
a good credit card that will give you hotel or airline points
and allow you a cheap or free vacation. Just pay of the credit
card every month and the points are virtually for free.
to Step #3: Emergency Savings