How to Get Out of the Credit Card Debt Cycle

After paying off between $12,000 (Dh44,070) and $15,000 in credit card debt in 2019, Yamiesha Bell, a special education teacher in New York, has not broken with her credit cards.

With the goal of buying a car and a house, Ms. Bell hoped to preserve her credit history by keeping her cards open and active.

“I needed to maintain my credit to get the interest rates I wanted in the future,” she says.

While credit cards aren’t ideal for everyone, they can make your credit journey easier if used responsibly.

When reconciling credit cards, you need a personalized no-debt plan. Here are some strategies to consider.

Reflect on consumer habits

Maybe you’ve given up on debt, but history can repeat itself if you don’t unpack the motivations behind it.

A deleveraging plan that works in the short term may not be viable in the long term if it doesn’t align with your priorities, says Julia Kramer, financial behavior and leadership consultant at Signature Financial Planning in the United States. .

Kramer suggests tracking transactions that are a week old or older. Add a plus sign next to purchases you’re ready to repeat and a minus sign next to those you’re not ready to repeat. For mandatory purchases such as gas and groceries, add an equals sign.

Note the date, item purchased, amount, and need the purchase met. Those frequent lattes or meals with friends may be more about the personal connection experienced, or something else, as opposed to the gratification the item provides, Ms. Kramer adds.

This information is essential for identifying areas of your budget that are negotiable. For example, you may be more inclined to choose budget foods to maintain a facial that satisfies an internal need for self-care and connection, she says.

If your spending goes astray through feelings like anxiety or boredom, make a plan for those occasions. This may mean budgeting extra money or using tricks such as using a credit card lock feature to avoid spending.

Use cash for certain categories

If you want to reduce your expenses in categories such as restaurants or entertainment, for example, put some money aside to stay within your budget.

Cash on hand can lead to more conscious spending, Ms. Kramer says.

Track expenses

Create a tracking system that works for you. Setting up spend alerts on a credit card account can notify you if purchases exceed a certain amount.

Tracking expenses with a spreadsheet, bullet journal, or budgeting app, for example, can also help with mental accounting.

“I wouldn’t open credit cards if you didn’t have a system to track expenses each month,” Ms. Kramer says. “It has to be something that you enjoy and that you know you are going to do.”

For Ms. Bell, a cash envelope tracking system helps her manage her expenses in different categories, including paying her credit card bill.

“When you look in a cash envelope and see that you only have $50, it’s very clear that once that money runs out there’s nothing more I can do,” she says.

Use credit cards only for planned purchases

Easily switch back to credit cards with small, planned purchases, like paying for a subscription service.

After paying off her debts, Ms. Bell only uses credit cards for purchases within the budget and she pays them off in full each month to avoid interest charges.

At first, she left her credit card at home to avoid using it.

Have an emergency fund to fall back on

An emergency fund of even $500 for a car or home repair can reduce your credit card debt.

Start small and aim to eventually cast a larger safety net over time – ideally three to six months of living expenses stashed in a high-yield savings account.

If you’ve already gotten used to budgeting a certain amount each month to pay creditors, keep it up, but direct the funds to savings instead.

Do not store credit card information on websites or apps

Convenient payment options can sometimes lead to crazy spending.

By entering payment information into the forms for every online purchase, you’ll have more time to think about a purchase.

Get a responsible partner

A non-judgmental partner or trusted loved one can offer their opinion on a purchase or debt-free plan.

A responsible partner can be a sounding board that allows you to listen aloud to your own rationales for financial decisions.

Update your strategy

As motivations and priorities change, your debt-free plan should follow. Continue to review credit card statements to identify which needs are being met by purchases and which are most important.

If during this process you continue to have frequent debt problems, consider closing credit card accounts, even though this can negatively impact credit scores.

“A big thing about it is knowing yourself and knowing what your areas of challenge are and finding ways to work around them,” Bell says.

“Five years from now it might look different, but right now it’s what works.”

Updated: April 20, 2022, 04:00