More and more people are labouring under high-interest credit card debt every year. These high-interest balances virtually ensure that the principal will never be paid off entirely most of the monthly minimum is going to interest. But there is hope! Moving your high-interest balances onto a cheap credit card with lower interest rates can help you get out of debt.

And even after the introductory period is over, a credit card will still leave you in much better shape than your old, high-interest credit cards did. If you go from a 15% interest rate down to, say, a 7.5% interest rate, you will be able to pay your debt off in half the time or less, since credit card interest is compounding. This translates directly into money saved, sometimes a LOT of money saved.

Remember the minimum monthly payment on your credit card statement is usually just enough to cover interest, with just enough going to principle to allow repayment in 60 or 70 years.

Let’s look at a couple of real-world examples. Let’s say that you carry an unpaid balance on a high-interest credit card that averages around £2,000. After one year of carrying this balance you will have added £300 in compound interest. The second year you will end the year with an unpaid balance of £2,645. Years 3, 4, and 5 would have unpaid balances of £3,041, £3,498, and £4022. In only 5 years the amount you owe has more than doubled. As you can see, getting a credit card with a good interest rate is key to managing your debt!

Another way of looking at it would be from the standpoint of making your minimum monthly payments. This would mean that after 5 years you have paid the credit card company around £1500 in monthly payments, and your principle is still sitting at around £1833.

Getting a cheap credit card can help you avoid this rapid debt accumulation. An interest rate half of that 15% credit card would put the time to double your debt at ten years; much more importantly, if you keep making payments in the same amount you do on the 15% interest credit card you will pay off your principle-and this is the key to lowering your debt. With lower principle comes lower interest charges; this leads to faster principle repayment.

They help you to decide how to spend your money, plan for your future, pay off existing debt, and save a few pennies each month by reducing wasteful and impulsive purchases.

When you begin setting up a monthly budget, start with big categories before breaking down your budget into smaller expense categories. A good list of basic budget categories to begin with includes the following:

Housing: Mortgage/rent, repairs, property taxes, cleaning supplies, homeowner’s/renter’s insurance, utilities, furnishings, décor.

Food: Groceries, meals out, pizza delivery, snacks and beverages at work

Transportation: Car payments, insurance, gas, oil, parking, repairs/maintenance, public transportation fees

Medical: Insurance, out-of-pocket expenses such as deductibles and non-insurance-covered medical services, pharmacy, eye care, dental

Clothing: New purchases, dry cleaning, repair

Personal: Cosmetics, haircuts, cleansers

Insurance: Life insurance and any other insurance not covered under home, transportation, or medical expenses

Education: Tuition, dues/fees, school pictures, yearbooks, school supplies, books

Credit accounts: Payments on major credit cards, department store cards, lines of credit through your bank or other lender, or on any other outstanding debt

Gifts: Holidays, birthdays, graduations, weddings, showers

Recreation: holidays, movies, books, magazines, newspapers, cable TV, restaurants, sporting events, sports equipment

Savings: Long-term and short-term goals, as well as retirement

Donations: Charities, churches

Within each general budget category, note that some items are essential (the mortgage or rent payment, the electric bill, and groceries), but other items are extra (new furniture, gifts, and pizza delivery). From your first list of general budget items, develop two separate budget lists, one for essentials and the other for extras. (We can’t dictate what’s essential and what’s extra for other people, so we don’t divide up the lists for you.

Some people may have to eat out regularly because of work-related issues and so dining out is an essential item in their life rather than an extra. Others may consider charitable giving an extra, whereas their friends down the street consider it non-negotiable because of religious convictions.)

Extra and flexible budget items are the main places to focus your frugal living tactics. You’re always going to have to pay your water bill, but cable television may be an extra utility that can be done away with for awhile if money’s needed in a more-essential budget category.

You can’t control what you don’t know. Go through your checkbook and any other receipts or records you’ve kept over the past few months so that you can track how much you actually spend on essentials. Then for one month, keep a detailed diary of all your extra purchases, even for cheap things like newspapers or coffee from the vending machine at work.

Little expenses quickly add up to big money when they’re made on a daily basis, and these smaller, out-of-pocket purchases that are frequently made with cash usually won’t show up in your check register, so writing them all down helps make you aware of where the cash is dribbling out of your life.

After you’ve discovered exactly where your money goes throughout the month, you may need to re-evaluate your written budget lists if you find your actual spending differed from your anticipated spending.

Credit cards have replaced cash as the most convenient way to pay for goods and services. Part of the reason for the growing popularity of credit cards is that they are becoming far cheaper. With an increasing number of issuers, including petrol stations, supermarkets, and football clubs as well as traditional high-street banks, interest rates are being forced down. Read more

Perks of Clearing Your Credit Card Balance Every Month

Here, on our website, you will find accurate information on over 160 credit cards, plus news and reviews covering loans, insurance and mortgage deals for efficient personal finance management.

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