Budget, Monthly Payments Keys to Managing Credit Card Debt

Credit cards are easy to obtain, simple to use – and many consumers find that it’s all too tempting to overextend their finances by using the cards for unnecessary or even luxury purchases.

Troy Wulfemeyer, who works as a financial coach with Kansas City’s Metro Lutheran Ministries, has worked with countless clients who have gotten themselves into budgetary trouble with those little plastic cards.

“What we see a lot of is the overuse [of credit cards],” Wulfemeyer said. “People will get a credit card with the best intentions as to what they’re going to do with it, but don’t have the financial literacy to understand that it’s not just something you can throw out there and use any time you’re short of cash. You’ve got to think about that.”

Many of his clients find themselves leaning on the card for both luxury purchases and everyday items when they’re low on cash, running up the balance on the card, and then not being able to keep up with the monthly payments.

Then, when the balance gets too high, many users find themselves ignoring the persistent calls from the card issuer.

“Because they can’t pay it off, there’s a tendency with the community that I work with, especially, that, ‘Well, if I just don’t look over there, I won’t see the bear,’” Wulfemeyer said.

In those situations, the account goes into collections, the card is suspended, and the user’s credit score takes a hit.

One of the first things that Wulfemeyer advises a client to do when they get in over their heads is, first of all, convincing them to stop using the card before the situation worsens.

The cardholder can call the credit card company and ask them to “lock down” the card for a period of time. That way, the user doesn’t have to get rid of the account altogether, but it’s much harder to use the card thoughtlessly if the person has to make a phone call to unlock the card.

That’s also a better option than getting rid of the credit card entirely, because one key to a healthy credit score is how long a person has had their lines of credit.

“The biggest thing I talk to people about is the budget. Because anything else is just going to be short-term,” he said. “If they do not have a budget in place, credit cards are awfully easy to jump into and get in trouble with.”

Another option is getting a bank consolidation loan that will gather all of the outstanding credit card debt and move it into one payment, though Wulfemeyer cautions that users should go to a bank rather than a high-interest payday lender for the loan.

Or, they might use the “snowball” method, in which they concentrate on paying off one loan at a time, and then as each one is paid off, they can use the money they were paying on the previous loan to pay down the next one.

It can even help to store the credit card in a harder-to-access place, such as the freezer, rather than carrying it around in a wallet, and to not store the card number in a cell phone, so that you actually have to have the physical card in order to use it.

But Wulfemeyer stresses that it’s crucial to “face the beast,” to make sure that payments are kept current, even when one’s financial situation is more challenging.

“Call those credit card companies and say, ‘Look, I know I’ve got a minimum payment that’s supposed to be this much. I can’t do that. Can I pay this much, and can that be my minimum payment until I can get better? Can I move the date?’ Oftentimes, it’s a cash-flow thing. … It’s amazing the things I’ve seen credit card companies do for clients if they’ll just call and talk instead of not facing it.