Outlaw FinanceEverything You Never Learned In School

Like many out there you probably spent more than you though while shopping back in December (I know I did).  It is now time to face those credit card bills and get yourself out of the hole.  Here are some steps you can take:

1. Develop a Budget

Start tracking your expenses, line by line, to see exactly where your money’s going each month. Cut back on your discretionary spending and apply those funds to your credit cards.

2. Set Realistic Goals

You can’t expect to lose 50 lbs in a month so don’t expect to pay off thousands of dollars of debt by the end of next month.  Instead make a realistic goal (an extra $50 a month to bill A) that you can stick with.

3. Plan Strategically

If you have more than one credit card , focus your biggest payments on the card with the highest interest rate. Once you have paid off this debt roll that payment (snowball) it onto the card with the next highest interest rate.  Keep doing this until you have paid off all your credit cards.

4. Transfer balances with Care

Consider transferring your balance  to a new card with a lower annual percentage rate as long as you can pay it off before the rate resets or it will reset at a rate equal to or lower than what you have now. Many cards offer extremely low rates for an introductory period, but make it up through high fees and a sky-high interest rates after a few months.

5. Save for Next Year

Once you pay off all those holiday debts start saving for next year.  There are many ways to do this.  Set a small amount aside from every paycheck into a special savings account.  Another way that I save is by putting all my extra change and cash it all in in early December.

If you have ever shopped at a department store you have been offered a 10% discount to open a store credit card.  While it may be tempting to open a new card and save that cash is it really worth it?  Unless you are going to make a payment right then and there to pay it off it is probably not worth it, and even then they may not be worth the hit on your credit score.

What makes Store Credit Cards bad?

1.  High interest rates Department stores will give a credit card to almost anyone.  With the ease of credit comes a high interest rate.  It is not uncommon to have interest rates above 20% on s store card.  I am sure the card in your wallet is less than that.

2.  Credit score hits If you go out shopping and open an account at every store you start to take hits on your credit score.  The more credit you have available can lower your score regardless of how much you owe.  Also multiple credit requests in a short period of time can and will ower your score.

3.  No rewards The credit card that you have in your wallet more than likely has some type of reward system tied to it whether it be cash back or a points system.  Most of your store cards are not going to provide this.

Store credit cards aren’t always bad especially if it is a store that you shop at regularly.  Just like all credit cards you need to make sure that you use them responsibly and don’t spend more than you would if you used cash.