Stopping the revolving door of credit card debt

If you are in credit card debt, you can count yourself as belonging to a rather large fraternity of Canadians. In fact, overall household debt, including credit cards, hit an all-time high in Canada of $1 trillion in 2006.


Of course, most people don't start out with a plan to get into debt. Consumer debt creeps up on people without much notice. In fact, credit card debt is rather similar to those unwelcome holiday pounds that are so easy to put on but almost impossible to shed. Credit card debt is created in small, consistent steps that provide instant gratification of our basic human need and desires (again, kind of like sneaking the occasional cookie or piece of pie that ends up on our waistline).

The Internet and airwaves are rife with credit card debt consolidation offers that hold out the promise to desperate victims of credit card debt of the prospect of becoming debt free. But, becoming debt free is a process that requires a complete change in attitude concerning how personal finances are handled. Again, similar to how a person must form a new relationship with food in order to lose weight, those in credit card debt must form a new relationship with money to become debt free.

Consider consolidation
Credit card debt consolidation can be a good first step, if done properly. By taking revolving debt from several high-interest credit cards and moving it to one lower interest rate credit card, a person can save thousands of dollars per year in finance charges. Such 0 per cent balance transfer offers are out there but do require reasonably good credit to qualify.

But, for many people who find themselves buried in credit card debt with high interest rates, a balance transfer or debt consolidation loan only temporarily mitigates their financial trouble. If there is a chronic underlying problem that involves not being able to live within one's means, the spectre of credit card debt will reappear down the road as sure as the sun rises in the east.

Make the decision to be debt free
So how does one stop the revolving door of credit card debt? Probably the best approach is to look at yourself in the mirror and decide once and for all to do something about the way you spend money. It's really just a matter of how you spend, where you spend and what you spend. Create a budget for the necessary things in life, as well as some small extravagances. Most people are surprised at how much money they waste each month when they track their cash and credit card spending.

While some debt consolidation experts recommend cutting up all credit cards, this is probably a bit too extreme. Perhaps a better approach is to keep one or two credit cards that have low interest rates or even 0 per cent APR for emergencies. But the most important thing is to stop adding to the outstanding balances with new purchases. That way you can begin the long, but necessary process of paying down the principal. And, once you become free from credit card debt, vow to never venture down that dark alley again.

Published June 27, 2008

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