New Jersey residents often focus on paying off their highest interest credit card first, but simply going after a card that will charge the most interest is only part of getting out of debt. In addition to throwing money towards credit card debt, one financial advisor states that consumers also need to ensure that they have a workable plan of action for staying out of debt. Without doing so, people may end up sending enormous amounts of money to creditors but still only making little progress.
One of the major reasons that some consumers struggle to get out of debt is because they continue to use their credit card. Even if someone is paying more than their minimum balance, they will not be able to get out of debt if they are paying less than the amount required to cover new interest charges and any items that are added to the card. It is recommended that individuals go on a debt card diet and only pay out of their checking account or with cash for items that they purchase.
Another reason that some consumers have trouble getting out of debt is because many individuals only send money to creditors but do not put aside money in savings. If consumers have no savings, when they run into an emergency like a large medical or vehicle repair bill, they have little other choice than to use their credit card. By putting some money aside in addition to paying off cards, they can avoid having to use plastic when they run into a problem.
In some cases, consumers’ debt is beyond their ability to pay back even with the best of plans. Filing for bankruptcy can discharge most unsecured debt. A lawyer could explain how the bankruptcy process works and help consumers choose a filing plan that works for their circumstances.
Source: Forbes, “When not to pay off your high-interest credit card debt“, Nancy Anderson, October 11, 2013