How to budget with credit cards in 5 steps

How to budget with credit cards in 5 steps

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Why you should use credit cards for budgeting in the first place?

If you think from the basic level, credit cards can help you with two important uses for budgeting:

  • Help you to manage your cash flow by allowing 30 days for making interest-free payment.
  • Assist you to track each expense you make which is one of the basic steps for budgeting.

A credit card gives you the benefit of maintaining the cash flow. It will also help you to maintain the balance between your income and spending needs each month.

Tracking your expenses is required to assess your spending habits on a month-to-month basis. If you try to build a budget with a credit card, there are a few of them available that will help you to categorize and chart your expenses.

How to build a budget with a credit card

To use a credit card to build a budgeting strategy, you should first require a workable budget in hand. Collect your latest credit card statement or you may check it online, and go through all the transactions. Then, you must categorize your expenses. A budget worksheet is useful for you in this case. It features common expense categories and it is easier to add up your money that’s going out. Later you may compare it with the money that’s coming in.

Now you’ll have all the expenses listed up in front of you to compare it with your income. The next thing you should do is to find answers to these candid questions:

  • What expenses are necessary and you can’t avoid?
  • Which expenses you can avoid for a while?
  • Is your spending under control?
  • Can you manage money for an emergency purpose?
  • Are you able to set money aside for savings, retirement, and investments?
  • Are you able to pay off your debts properly?

If you are getting positive answers to these questions already, congratulations!

Now, if you don’t have the answers clearly, you may strictly follow these below-given steps and successfully build a budget with a credit card.

Build a budget with a credit card in 5 steps

Once you’re clear with a budgeting strategy, these 5 steps will help you to achieve success:

Step 1- List all of your expenses

When you create a budget for the first time, the initial thing you need to do is to make a list of your actual monthly expenses. You may start by listing everything you pay for every month, such as your mortgage or rent payments, credit card bills, car installments, food costs, utility bills, along with certain annual payments like insurance premiums, etc. List the important along with other non-essential expenses, if you want to become successful with your budget.
Here’s where your credit card statement comes in handy. Make sure to include the little purchases you might have forgotten about.
However, to do so, you should make all the payments through your credit cards.

Step 2 – Compare the total expenses with your income

Once all your expenses are listed, it is crucial to compare the total expense with your actual income. Chances are, you already know the answer.
If your monthly spending is higher than your monthly income, you’re probably going to fall in debt or are already in deep debt. On the other hand, if your income is higher than your monthly expenses, you have the option to save money each month. Generally, we use credit cards for paying most of the expenses.

Step 3 – Find out options to cut expenses

One of the best ways to save from your ever-growing expenses is to look for other ways to reduce expenses. After all, reducing non-essential costs and saving money… that is the real motto of budgeting in the first place, right?
You may practically set up a budget for spending. For example – if you like to spend $200 a month for “eating out,” you may set up a budget with that number keeping in your budget plan.
Your credit card monthly statement for the last two or three months may help you to analyze how much you’re spending on each category. You need to compare your current months’ expenses in different categories with last month. You need to focus on necessary categories first, such as groceries, utilities, credit card bills, phone bill, meds, etc.
This way you have a clear picture of your current spending pattern. You will know whether you are spending more or spending less than in the last few months. Once you find out your problem areas, you’ll need to prepare a plan to adjust the expenses meaningfully.

Step 4 – Create realistic budget categories for next month

Once you are aware of the facts of your spending in the last three months, it’ll be the right time to create new budget limits. You can do one thing, take your average spending on the last three months and fix it on each variable category. For next month, try to reduce it down by 20%.

Step 5 – Start the new month with a fresh budget

Once your new budget is ready, start the new month with a brand new budget plan. This is where your credit card can be helpful. In the new month, do not use cash or debit card to make payments. Instead, start making the entire purchases by using your credit cards.
You may need to see the current status of your new budget once a week, so take a look at your statement online.
Pay your credit card bills in full per month so that you may stay on track and avoid paying interest.
If you find that you are crossing your budget almost every week, you may ask your credit card provider to reduce your credit limit to the amount you intend to charge each month. For example, you might have budgeted $2,000 each for groceries, transport, gym, gas, entertainment, Internet, and cell phones. So, you may ask your credit card company for lowering your credit limit to $2500 so that you may stay within your budget and have $500 for emergencies.

Conclusion

Credit card to build a budgeting strategy can be easy as the credit card itself is a valuable tool. But you must keep all the records of your spending, else you can’t create a great budget to manage your finances well.

Credit cards can never define your buying power

Credit cards can never define your buying power

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As the necessities of life are getting dearer, an increasingly large number of people in America are resorting to credit cards for their daily needs. Due to the impact of poor employment and low salary, a large number of people are not having enough cash with which they can make ends meet. Thus, they are using their credit cards to meet daily necessities.

Most people are paying their rent, utility bills, and food costs with the help of their credit cards. Though they’re getting an immediate relief, they’re gradually being caught in the vicious trap of consumer credit card debt. Even worse, if they are even late with their payments by a day, they’re subject to an outrageously high-interest rate.

Credit cards are now becoming popular for some important features. People can avoid cyber scam by using credit cards instead of debit cards. In addition to this, people are now more comfortable in doing online transactions instead of carrying cash.

Also, some attractive offers and rewards are attracting people to keep various credit cards.

For example,

People are now getting a travel card, store card, gas card, and many more. They want to get discounts and earn miles, or points by using their cards.

It seems credit cards are the perfect tools for modern people’s life in an advanced country like America.

But what is not right is the rising credit card debt that our Nation owes.

Yes, according to the Federal Reserve, America owes $1.058 trillion in total consumer credit card debt in 128 million U.S. households.

Unfortunately, the average U.S. household has $8,292 credit card debt. And, an individual who is carrying a credit card has $5,839 debt.

In short, people are not managing their credit cards properly. They forget about the basic rule of managing a credit card.

If you analyze the reason behind this high credit card debt in our nation, you will understand that credit cards are becoming powerful tools for people. They are using the power to get everything that they want. They are constantly applying for new credit cards but they don’t know how to manage them.

Credit cards: The truth of using these powerful tools

People who are under 21 years can apply for credit cards now. Though, they have to show independent income or assets to get the approval. The credit card company allows a credit limit while giving the card to the person, which means the maximum outstanding balance you can have on credit card at a given point of time without getting a penalty. This means, credit card company only wants to get assured that the person who is asking for a credit card can pay the credit card bills.

But, while using this tool, people are becoming more spendthrift as they consider it as free money. Using a credit card, you are not supposed to pay the bill while buying an item. Just swipe the card and get the item.

People simply forget the fact that they are supposed to pay the bills in full and within time. Even making the minimum payment is not sufficient.

With the present debt situation in the US and the number of debt delinquents, it’s no wonder that the credit card issuers are all skittish about the rising number of risky borrowers.

As the employment rate declines to add fuel to the fire, the credit card issuers are all trying their best to limit their risk exposure.

10 Rules of managing credit cards properly to avoid debt

It is clear that U.S. consumers are in huge credit card debt as they fail to follow the credit card rules.
But, knowing the rules can help you to stay away from the debt. You can also build a good credit score by managing your credit cards properly.
Here you go:

1. Pay your balance every month

Remember, getting a card is not enough, you should pay the bills in full and within time. Carrying balance to the next month only increases interest.
Pay the bills in full so that you don’t accumulate interest rates and reach a huge amount in the future.

2. Avoid paying just the minimum payment

Making only the minimum payment on your credit card is not enough. The longer you’ll make just the minimum payments, the more money you’ll accumulate in the form of interest rates.

3. Try to understand the terms of the credit

You need to read the terms and conditions of a credit card while taking out a credit card. Know the interest rates, the payment schedule, and the fees on the card. It helps to avoid being subject to sudden late fees and penalties that can unnecessarily increase your monthly payments.

4. Don’t use credit cards beyond your affordability

Remember your credit cards just make your life easier but if you use them randomly, you can fall into financial trouble. Because the amount that you charge on your credit card needs to be paid back in full. If you don’t do that, you will be in debt soon. Thus, you shouldn’t buy items using a credit card that you can’t afford in cash.

5. Remember your due dates

Keep track of the due dates so that you don’t miss a single payment. Most credit card companies charge fees for even a late payment. Set reminders to avoid being subject to any kind of additional payments that can increase the scheduled monthly payments that you’re already supposed to make.

6. Avoid falling into the bonus and reward traps

Using multiple cards is nothing but luxury and foolishness. Having too many cards just create more opportunities to get on a spending spree. Avoid applying for more cards just to get the rewards and miles. Remember, these are marketing tactics by the credit card companies. They want you to use a credit card for every purchase. But you shouldn’t do this. Using credit card just to get points is foolishness. Remember, nothing comes free; you are actually making forced purchases.

7. Create a spending plan

Everyone needs to create a monetary plan and follow it to let go of their high-interest debts. Without a plan, no one can work towards the goal. You should also have a budget that can assist you in tracking your income, expenses, and monitor your savings. Also, you need to create a spending plan before going out with cards. It will help you to avoid frivolous spending.

8. Put your credit cards on hold

Restrict the usage of the credit cards so that you can stop yourself from accumulating further debt.

9. Pay off high-interest debt first

Debt avalanche method is a wise way of dealing with credit card debts. Target the account with the highest interest rate and direct all your financial resources towards clearing off that debt amount while making the minimum monthly payments on other cards. After you clear off that debt, target the one with the second-highest rate and follow the same method.

10. Avoid carrying cards

If you are addicted to get on a shopping spree, then carry cash instead of credit so that you can at least stop shopping when you exhaust cash. The more you use credit, the more you’ll incur debt and you’ll be bound to repay the money.

Lastly, as America is gradually turning into a cashless country, people should be more knowledgeable about their credit cards. You should also be aware of the federal rules that are continuously being cracked on the credit card companies. Always stay within your affordability so that you don’t need to overstretch your budget and fall into debt.

ways-to-consolidate-all-your-credit-cards-into-one

How to consolidate credit card debts into one using a credit card debt consolidation method

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If you’re facing emotional and financial distress due to your huge credit card balances, opting for the credit card debt consolidation option might give you a big relief from your financial hardship.

Consolidating your debts  is quite an easy thing to understand. The main purpose of a debt consolidation method is to reduce your high-interest debts and ease up the monthly payments. In case of your credit card debts, you just have to borrow money from a lender and pay off the debts, or you can transfer the entire balance to another low-interest card. The new interest rate should be lower than your all credit card combined. You can also opt for professional help, if required.

# Why should you consolidate credit card debt?

Credit card debts have a huge interest rate compared to other loans and debts. So, if you have a good credit score, you may be able to qualify for a lower rate loan.

If you are seriously drowning into credit card bills and can’t negotiate with your creditor for a lower rate, opting for a credit card consolidation option will be a wise choice to get rid of annoying debts. By consolidating your debts, you can pay off your outstanding balances or delinquent debts, causing your score to improve.

So, if you want to get rid of your credit card debts and save a good amount from the interest, you should combine your credit cards into one single payment every month.

# Things you must consider before opting for credit card consolidation

Before paying off credit card debts through consolidation option, it’s important to consider these factors:

  1. Analyze your financial situation and the current scenario

You should ask yourself a few questions before choosing a  credit card consolidation option. These are:

  • What is your total debt amount?
  • How much can you afford to pay toward the credit cards per month?
  • In case of a balance transfer, till what time the low-rate introductory period will be  valid?

Consider these factors and chalk out how much you can save on interest when  you choose a particular method to consolidate your debts.

  1. Check the impact on your credit score

Consolidating your credit cards may increase your credit score. Paying off your credit cards will lower the credit utilization ratio and boost your score. You must also avoid closing old accounts after consolidation. It’ll increase the available combined credit limit.

  1. Check out for the hidden fees

With a 0% intro APR you might have to pay transfer fees from 2% to 5% of each balance transferred. But in most cases, you might save a lot in the long run.

After considering these factors, you must be confident to consolidate credit card debt.

So, now let’s find out the best ways to do so.

# The best ways to perform a credit card debt consolidation

Here are a few ways to pay off unsecured bills with the help of consolidation.

  1. Transfer the balance through a balance transfer credit card

You can use a balance transfer method with an introductory 0% interest rate. You need to remember the time until the 0% offer is valid. The offer may be applied to the balance transfer as well as on purchases.

If you opt for a balance transfer card, you can  transfer your high-interest credit card balance to a low-interest card and pay off the balance anytime during the promotional period, without paying any interest. It is a big saving, indeed.

Make sure you learn about the balance transfer fee; it may depend on the balance amount you transfer. Also, make sure the combined transferred balance shouldn’t be higher than the credit limit.

  1. Opt for a personal loan

You can apply for a personal loan from credit unions and banks. It’ll be easier for you to get such a loan with a low interest if you have a good credit score. Some lenders may provide you with lower interest rates on personal loans compared to your credit cards. The repayment tenure of personal loans are also longer than credit card debts. But before applying for the loan, ask your lender about hidden fees or charges, if any.

  1. Take out a loan against your car or home

You may use a cash-out refinance or a HELOC to create funds for credit consolidation. You may contact your bank, a credit union, or online lenders and take out a loan using your car or home as a collateral.

The interest rate on credit cards are normally higher than home loan and car loan interest rates. The mortgage interest is also tax deductible up to a certain amount.

However, these options are quite risky in a broader sense. Practically, you are risking your home or car to pay off credit cards. That means you are paying off unsecured debts by taking out a secured loan .

If you can’t pay off the loan, you may lose your home or car, that’s for sure.

  1. Take out funds from your retirement account

You can withdraw money from your employer-sponsored 401(k) or an IRA, and use those funds to pay off your credit card debts. This is one of the easiest ways to generate money for debt payments. It is because there’s no credit check required to withdraw your own money. You can withdraw up to 50% of your account balance.

Try to pay back the money within 5 years, unless your retirement savings may get a hit. Make sure to avoid paying early withdrawal penalty if possible.

  1. Borrow money from close ones

You can borrow money from your close friends or family members like parents, brother, sister, or grandparents and consolidate your credit card debts. This is the easiest way to arrange money for debt payments as there’s no credit check, and the interest rate will be lower than other conventional unsecured loans. If you get lucky, your lender (it may be your father or grandfather, or a friend) may lend you money at a 0% interest rate, which  means no interest at all!

  1. Get help from a credit counseling company

Get expert advice from a nonprofit credit counseling company. They may also help you to create a repayment plan for consolidating your credit cards. You can contact a National Foundation for Credit Counseling (NFCC) accredited company if you’re serious about this option.

The credit counseling company will help you set up a repayment plan under a debt management program. Through this program, you can make  a single monthly payment to the credit counseling company. The company will talk with your creditors and pay them on schedule. In this process, the credit counseling company will negotiate with the creditor to lower your interest rates so that it’s easier for you to repay debts. s.

The credit counseling company may charge a relatively lower  fee to provide you with the services you need to manage your debts.

Now, these are some good ways to make your credit cards clean. Now it is up to you how you are going to use them. If you’re still getting confused, you can definitely consult a professional before making a move.

have-a-fluctuating-income-here-is-how-you-can-pay-off-credit-card-debt

How to pay off credit card debt on a variable income?

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It is difficult, no doubt, to manage personal finances when you are having a variable income.
Or, in other words, if you don’t have a steady paycheck on a timely basis.

Then, things get even worse, when you have racked up some big consumer debts like credit cards, personal loans, and all.

What to do then! Does it mean that people, who don’t have a steady income, should not use credit cards?!

Definitely not!

That’s why we have come up with this unique blog post for you, that will precisely help you deal with credit card debt when your income is not fixed.

So, let’s carry on with the guide, and point out some very basic ideas to straighten up your credit card payments!

Take a year’s example to understand your net annual income:

This I believe you are already doing it. If not, then you better do it, before things start falling apart.

You can be freelancing, have your own startup, or might be into some business. But, you should have a rough idea on what your annual income is.

Go back 2 to 3 years, and see how much you earned annually. Some few hundred dollars difference is not a problem, but a gap of some thousand dollars mean you need to reinvent your business strategies a bit.

You need to make sure that each year, your net income should fall within a fixed margin. The target got to be pretty clear, that by the end of each year, you are bringing in roughly the same amount of money.
That’s your call, and it depends on you, how you will do that!

Understand the credit cards you have and the payments they require:

Credit card debts are like damsels in distress that require special attention. The more you ignore them, more will they swell with anger, that is grow red on interests!

But, your income is not stable. A big reminder for you, every time you look at the bills.

Now, the best thing you can do is getting an overall idea, that how much percentage do the credit card payments demand, of your total annual income.

If it comes around 1/3rd of your net income, then you seriously need to regulate your spending behavior!
A credit card payment that makes up more than 30% of your income is not at all a good sign.

But whatever! You got to deal with the situation. And this brings us to our next most vital step.

Keep aside the same percentage of money each month, for credit card payments:

If your credit card debt requires 25% of your annual income, to be paid off in full within one year, then here’s what you need to do.

Each month, no matter whatever you earn, you keep aside 25% of it, for your debt.

Now, if you earn $1, then separate 25 cents for the credit cards. Sounds funny?? Well, that’s what you exactly got to do, my friend!

It’s like a lot easier, if you understand this simple math:

Let, your incomes for twelve months be, X1, X2, X3, X4, X4, X5, X6, X7,……. X12!

Now, (X1+X2+X3…… +X12)= Total annual income (A).

So, if 25% of (A), is all your credit cards want, then give it to them.

That will be,
25% of (X1+X2+X3…… +X12) = 25% of (A).
And, that means,
[(25%of X1) + (25%of X2) + (25%of X3) + (25%of X4) +………+ (25%of X12)] = 25% of (A).

Thus, irrespective of your salary, per month, you deduct the same percentage for credit card payments.

But, the only thing you really need to take care of is that, your predicted annual income, the year you are doing the calculation for, should not ditch you!

Give credit card debt consolidation a big-time thought:

Be it you have a fixed income or variable income, debt consolidation is the master plan you can always take shelter of.

Highly effective when you are dealing with unsecured debts, especially credit cards.

If you think that your monthly payments are really high, and if only you could extend the course of payments, by lowering your monthly amounts, then debt consolidation is what you are really talking about.

This unique debt relief process works out best when you enroll in a debt consolidation program  with a consolidation company. They will talk to your creditor, and try to make some shiftings and arrangement to your credit card payments, based on your affordability.

Once the deal is successful, you will have to just pay the consolidation company, some minimized amount each month, which in return the company will disburse among your creditors, as per the agreement they made.

Debt consolidation will surely lower the payment burden quite significantly. So, be wise and talk to a consolidation company as fast as you can.

Once the monthly payments get lowered, you won’t have much problem paying off the credit card debt on variable income.

The final step to take, is always increase your income, and get a steady cash inflow:

Big investors, well-off businessmen, and good entrepreneurs, all have debts around them. But, rarely you will find them so freaked out about their debts.

The hidden truth is, even if they are self-employed, they still try to maintain a steady income.

On the other hand, however, if your income is season based, like woolen products or commodities and all, then try to expand your products range.

Now, we can’t discuss over here how to expand your business! I believe I have done my part.

Best of luck, and do follow the tips I gave you throughout the post. If required go through this post again and again, in order to understand the simple maths, I explained.

settle credit card debt in collection?

What happens to your credit if you settle credit card debt in collection?

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Credit card debt gets worse when they are charged off and transferred to collections!

There are a few things that you should keep in mind when you plan to settle credit card debts, that are currently handled by a collection agency!

Remember, your credit score has already been affected when your creditor wrote the debt off as delinquent! Your score can only get worse, if you delay sorting it out with the collection agency.

So, once a credit card debt goes to collections, it’s now the agency’s duty to report to the credit bureaus about your delinquency. And, your credit score is typically based on what’s getting displayed on the credit reports, issued by the bureaus.

The collection agency will decide whether or not to report your current debt status to the credit bureaus. Till your status gets updated with a credit bureau, you have the game on your side. In fact, you can even make sure that this collection account never gets reported!

What you do is, you enter into a settlement offer with the collection agency.

Is credit card debt settlement easy? How do you do it?

If you are in a pretty messed up situation, where your credit score has fallen to sea level, your expenses have surpassed your income, your debt amounts are in no place to be paid off, then we believe you should go for credit card debt settlement!

Moreover, if your debts are passed onto collections, then a settlement is the best option!
Because, it is far better to settle and get rid of the collection account once and for all, than dragging it for long with balance transfer or other ways to pay off credit card debt!

The credit card settlement process is pretty easy if you work with a settlement company. You might get to read and hear in many places that these debt settlement companies are not worth it, as many are frauds and some don’t have a smart reputation.

But, trust is God! You got to have faith and patience!
The settlement companies take time in handling debts, but they are really helpful, if you can select a settlement company that has a good history with settling credit card debt. Experience speaks a lot while trying to settle debts, especially for the accounts handled by debt collectors.
You can definitely do it yourself – the credit card debt settlement, but collectors are no easy game!

They will try to harass you and pull back the owed amounts by all the means possible. At times it doesn’t go unheard that these collectors use manpower and gunpowder to force the debtors to pay their debts!

How debt settlement affects your credit

See man, to tell you the truth, any form of paying off debt that doesn’t involve the normal schedule of payment will hurt your score, do whatever you may want!

But we can truly try the best, to cause as little harm as possible to the credit score, while doing settlement.

The credit card settlement process is not over, even after the debts get settled. The next step is probably the most vital one.

The collectors should report the account as ‘paid in full’ or anything like that, to the credit bureaus. If the account gets displayed as ‘settled’ or ‘discharged on forgiveness’, and so on, then your credit score will fall heavily. This is a negative mark on your credit report.

I believe the trick is to influence the collectors to display the account as rightfully paid, or there’s no way to help your credit score increase.And, playing this trick is no simple water!!

So, take help of lawyers and settlement companies to accomplish your debt goals!
Still when you are doing a lump sum settlement for credit cards, you actually should not worry about credit scores much. A lump sum settlement is never a favourable condition for creditors. They will always try to avenge it, by smudging the credit reports, as that’s something in their court.

A credit card lump sum settlement can never be good for credit score or your credit history.
Usually we always ask debtors to try to pay off credit card bills on time, to avoid later complications. But, what to do!! Things get so messy at times, that a credit card lump sum settlement is the only viable option for us.

Finally comes the question, can paying off or settling debts in collections help credit?

A good credit card debt settlement done by professionals in the best procedure, can help your credit score to increase!

That’s because it has two aspects. One that I have already discussed above, is to get the collector or creditor send a good status to the credit bureau, once the settlement is over.
The second is, upon you, where you will become a responsible credit user in the future. Now that the debts are settled, and you are freed of the debt burden, you should focus on building your credit score once again. This might sound impractical and hypothetical, but it’s true!

So, next time onwards, take this precious suggestion! Pay debts on time.
If you can’t pay it off in full, then settle it, no matter in what position the debt is! It doesn’t really matter whether it’s with the creditor or a collector, and so! Just get rid of it, before it’s too late.

One way, your scores are gonna drop because you couldn’t pay in time! Hence, don’t waste anymore time!
First deal with the debt, and then you can plan to mend the broken credit score, by learning from your past mistakes.