We have seen our fair share of cases involving chapter 7 bankruptcy brought about by improper use of credit cards. We do everything we can to ensure the best interests of our clients in such cases, as our fiduciary responsibility dictates, but bankruptcy still brings with it negative consequences. It is far better to manage credit cards in order to prevent bankruptcy altogether.
Consumers with excessive credit card debt are often challenged by the revolving nature of this form of credit. Because consumers can continue charging right up to their limits, it doesn’t take much to max out a credit card and then never be able to pay it off because the consumer can only afford minimum monthly payments.
In the interest of helping our readers avoid bankruptcy, we have put together a list of tips for managing your credit. By using credit cards responsibly and in line with your budget, you should be able to keep your finances in order.
Limit the Number of Cards You Have
Financial experts recommend having at least two credit cards so that you have one available for emergencies in the event the other is maxed out. This is a good strategy to a point. However, the risk here is that the consumer will max out both credit cards simply because he or she can. Our advice is to limit the number of cards you have to as few as possible. Two or three is not bad; any more than three could be risky.
Use One of Your Cards like Cash
An excellent way to establish credit card discipline is to set aside one of your cards and use it exclusively as cash. In other words, everything you would normally pay cash for (e.g., groceries, gas, etc.) is charged to that card. The cash you would have spent is put into a savings account and used to pay your credit card bill in full at the end of the month. Repeating this process month after month quickly establishes a pattern of using credit cards responsibly.
As an added bonus, using a card that gives you cash back will actually result in you paying less for the products you buy, provided you pay your bill in full every month. A 2% cash back bonus, for example, means you’re paying 2% less for the gas and groceries you buy.
Budget for Credit Card Payments
Establishing and sticking to a budget is one of the most fundamental principles of sound financial management. Unfortunately, many people forget to include credit card payments in their budgets. The result can be overspending on those cards. Before you charge anything to your credit card, make sure you work out the monthly payment and add it to your budget. If your budget will not support your purchase, consider setting the purchase aside until it will.
Establish a Habit of Saving
Lastly, credit cards are normally used for emergencies or impulse purchases. This is not necessarily a bad thing, but would it not be better to handle these expenses with cash? By establishing a habit of saving – even if you can only afford to put away a small amount every month – reduces your dependence on credit cards by ensuring you have extra cash on hand for those emergencies.
Obviously, good credit card management alone is not the cure for bankruptcy woes. Sometimes there are unforeseen circumstances that go above and beyond credit card debt, capable of pushing someone into insolvency. If you are considering bankruptcy yourself, we can help. Contact our law offices for more information.