Good Credit Card Bad Debts

Most Americans and an increasing number of Indians are living beyond their means. While I am not against the use of a credit card, I do feel alarmed at the attitude people have towards debt. They use it to buy T-shirts, CDs, movie tickets, food and other sundry items. Consumables should ideally be paid-off from your current income, but we opt to use the card, without realising that means additional interest.

Today, we will take a look at what you can do if you have got into debt. More importantly, let's start with a negative list — how not to pare down your debt.(Six ways how you should not repay excess credit card debt)

6. Surrendering your insurance/pension plans: Don't ever touch your long-term investments or change your insurance plans to reduce debt.

5. Using an inheritance:Never touch your inheritance or nest egg. Use this money to buy a deferred annuity. If you lived so long without this annuity, you can learn to live a little longer without the gift.

4. Breaking earmarked investments: In case you have some investment earmarked for your child's education or marriage, do not break that investment to repay a loan caused by indulgence.

3. Stopping your SIP started long back: If you are doing an SIP (Systematic Investment Plan) and getting good results, do not tamper with it.

2. Creating a second mortgage on your house:It is very tempting to do this. But remember a credit card debt is a short-term unsecured borrowing. Don't put your house at risk to pay this.

1. Withdrawing from your Provident Fund: Do not touch this case except for a genuine emergency.

Having said that, it would be unfair if I did not talk about ways to pare down too much debt.

1. Change your habits: Break the habit that got you into debt. It could be spending beyond your means, or owning assets that you cannot afford.

2. Set small goals:If you are spending too much money on, say, alcohol, set yourself a cap — not more than 2 pegs in one sitting!

3. Set monetary limits: If you are spending too much on clothes, set yourself a limit.

4. Start small savings:Use a portion of the saving and do a systematic investment plan. The effect of compounding will soon take over.

5. Throw away extra credit cards: One or two cards is more than enough.

6. Pay more: Pay more than just the minimum on your card limits.7. Personal Loan:If possible, get a personal loan and repay all credit card debts. It's usually cheaper.