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Common Debt Reduction Mistakes

Common Debt Reduction Mistakes

    The No Credit Needed Blog gives some insight into the mistakes most commonly made when trying to climb out of debt. The foundation of the tips seems to be staying calm, protecting yourself and your assets, and creating a plan to get out of debt (not just going for broke trying to pay everything off at once). The following are my favorite tips from the list:

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    Try not to skimp on the emergency fund. I’m a big fan of having a “baby emergency fund” of at least $1000 in my savings account at all times. If you are going to get out of debt, you will be VERY tempted to empty out your cash savings and put every single available penny towards debt reduction. Resist this very powerful (and very real) temptation. Why? Just as soon as you empty that emergency fund for debt reduction, an unexpected expense will arise, and you’ll have to borrow money to pay for it. Instead, use your emergency fund for true emergencies, build it back up, and then continue with your debt reduction. It’s better to miss your goal date by a few months (like I did) than to live life without some emergency cash.

    Avoid using a second mortgage to consolidate automobile or credit card debt. Before you use any company to consolidate your debt, read the fine print! Personally, I find that most people who move debt from a credit card to a mortgage, without changing their behavior, end up with mortgage debt AND additional credit card debt. Plus, who wants to risk their home for the sake of paying off unsecured credit card debt?

    Never think that you are stuck with the life that you have right now. I find it amazing the number of people who don’t think they can do anything about their jobs, their health, their finances, or their futures. If you want a better life, you must choose a better life. Read a book. Write a resume. Find a church. Join a support group. Create a plan. If you are frustrated and feel like there is no hope, wake up! You can have an awesome life. Stop feeling sorry for yourself, stop worrying about your past, stop blaming yourself and others, stop making excuses, get up, get out, get going, and get a life! You can ROCK!

    Avoid 10 Common Debt Reduction Mistakes – [No Credit Needed Blog]

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    Last Updated on March 4, 2019

    How to Use Credit Cards While Staying Out of Debt

    How to Use Credit Cards While Staying Out of Debt

    Many people will suggest that the best thing to do with your credit cards during these tough economic times is to cut them up with a pair of scissors. Indeed, if you are already in huge debt, you probably should stop using them and begin a payback strategy immediately. However, if you are not currently in trouble with your credit cards, there are wise ways to use them.

    I happen to really love my credit cards so I will share with you my approach to how I use mine without getting into deep financial trouble.

    Ever since about 1983 when I got my first Visa card, I continue to charge as many of my purchases as possible on credit. Everything from gas, groceries and monthly payments for services like my cable and home security monitoring are charged on credit. Despite my heavy usage, I have maintained the joy of never paying any interest fees at all on any of my credit cards.

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    Here are some tips on how best to use your credit cards without falling into the trap of paying those nasty double-digit interest fees.

    Do Not Treat Credit Cards as Your Funding Sources

    Too many people treat their credit cards as funding sources for major purchases. Do not do this if you want to stay out of trouble. I use my credit cards as convenient financial instruments so I do not have to carry around much cash. In fact, I hate carrying cash, especially coins. When you buy things on credit, the purchases are clean and you will not get annoying coins back as change.

    I do not rely on my Visa, MasterCard or American Express to fund any of my purchases, large or small. This brings me to my golden rule when it comes to whether I will pull out any of my credit cards either at a retail or online store.

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    I never purchase anything with my credit cards if I do not have the actual cash on hand in my bank account.

    If I really cannot pay for the item or service with cash that I already have at the bank, then I simply will not make the purchase. Remember, my credit cards are not used as funding sources. They are just convenient alternatives to actual cash in my pocket.

    Make Sure to Always Pay Off Balances in Full Each Month

    The next very important part of my overall strategy is to make absolutely sure that I pay the balances in full each and every month no matter how large they are. This should never be a problem if the cash has been budgeted for my purchases and secured in the bank. I have always paid my full balances each month ever since my very first credit card and this is why I never pay interest charges.

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    Using Credit Cards with Rewards

    Most of my credit cards are of the “no annual fees” type, including one MasterCard on a separate account I keep at home as a spare in case I lose my wallet or incur any fraudulent charges. However, I do use a main Visa card which does have an annual fee because all purchases on that card reward me with airline frequent flyer points. For me, the annual fee is worth it since I do travel and I get enough points to redeem many free flights.

    You have to decide for yourself if you will charge enough purchases on credit each year without paying interest charges to warrant a credit card that rewards you with airline points (or other rewards). In my case, the answer is “yes” but that might not be the case for you.

    I occasionally use a MasterCard or American Express card on small purchases just to keep those accounts active. Also, I have been to the odd retailer that accepted only a certain type of credit card, so I find that having one from each major company is quite handy. Aside from my main Visa card which earns the airline points, the rest of my cards are of the “no annual fees” variety.

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    So this is how I use my credit cards without getting into any financial trouble with them. This strategy is recommended only if you are not in debt, of course. In fact, it is worth keeping in mind once you’re out of debt so that you can keep your credit cards active and treat them responsibly.

    What are your credit card usage strategies? Let me know in the comments — I’d love to hear what methods you use.

    Featured photo credit: Artem Bali via unsplash.com

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