One of the most financially crippling situations you could find yourself in is staring at a huge credit card debt. Your mind starts to try and retrace your steps just to have some understanding of how you got to your present situation. Holding a credit card statement with a total amount due you cannot afford to pay back in full can be stressful.
You start to take mental notes of all the expenses you need to attend to at home which is non-negotiable. Basic necessities fly off the list like food or groceries, utilities, car expenses to help you get to work, and others. You start to tally all those and look at what is left and it is still not enough to pay back your cards.
A huge credit card debt can be a dose of cold shower snapping you back to reality and making you think long and hard about your past money decisions. It will not only stress you out but at times, it can be downright depressing as you try to figure out how you ended up with so much debt but knowing you cannot pay it back.
Why are you incurring too much debt?
This is normally the first question you start to ask yourself when faced with a huge card payment. As you try to look for the answers in your head, here are a few of the most common reasons why you might be in card debt.
Are your expenses too much for your income?
You might not realize it as it could happen incrementally over the course of time but you could be surprised to find out that your expenses are more than your income. You might be surprised that USA Today shared how Americans are spending about $18,000 a year on non-essentials. It could happen that you add a few payment obligations here and there and sooner or later, they add up to a quite a total. You may not even realize that you are already exceeding your income amount.
Is your lifestyle too much for your current income?
One of the biggest reasons why you could have a huge credit card debt is your current lifestyle. This is not something you decide to have in one day. This builds up over time with a lot of factors to consider. It can start from how your life was when you were growing up in your family to experiences in school and all the way to how your social circle at work spends money.
What can you do about it?
Now that you have an idea of how you can end up with a huge card debt under your name, the next logical thing to do is start getting to work and find a way out of it. Getting your hands on some windfall money could be a stroke of luck like an inheritance or even a performance bonus at work. However, it may not always be the case. Take a look at these steps to help you figure out your next course of action.
Go over your budget to look for the problem
The first place you need to look into is your household budget. Take a look and determine what are the causes that lead to a huge credit card debt. Is your income well below your expenses? If not, do you have big-ticket purchases that are unscheduled? Did you recently have to go through an emergency with only your credit cards to depend on?
This not only highlights the need to have a comprehensive household budget but you need to be able to understand derive the necessary information from it. If you are just starting out in creating a budget, you do not need a complex system. The basic pillars of a budget are your sources of income and your expenses.
The general idea is to have a bigger income than your expenses so you will not only be able to meet your present needs, you will have money saved up for the future as well. If it is the other way around, you need to start thinking of ways how to reverse that. The longer you are in deficit, the deeper your debt situation can be.
Make the necessary adjustments
This is where the work starts to come in if you want to get out of your current situation. At this point, you need to have an idea of why you have a huge credit card debt under your name. If your expenses are much more than what you are bringing in every month, start looking for ways to lower down that cost gradually.
If your problem is caused by your inability to control your spending, put safeguards in place to help minimize the instances of impulsive shopping and buying. Leave your credit cards at home and use them only for emergencies. You can also assign a specific card to a specific item in your budget to limit its use. If you frequently shop online for items you do not need, do not save your credit card information on your gadgets.
The idea is to look for the problem, identify what correction you need to make, and then do it. There are times when you might already know what needs to be done but you choose to ignore it, hoping things will change for the better. Financial problems such as debt rarely improve over time. In fact, it worsens over time until it takes over your entire finances.
How can you prevent the same thing from happening again?
Once you take on the path to rid yourself of your financial problems, it also helps to look at prevention to help stay away from similar problems in the future.
Stick to your budget adjustments
Once you make changes in your budget for the better, you need to plan to stick for it for a long time. Not only will it help you manage your current situation, but it can also help you reach your long-term financial goals. Think of these are long-term changes and not short-lived adjustments especially because the damage of having huge debt does not disappear in just a short time.
Bring in more sources of income
One of the possible reasons why you have a huge credit card debt is because your main source of income has not seen growth for a while. In these cases, it might be a smart idea to look for ways to complement your income with a side hustle. It may be a bonus if you can tap into your hobby and find a way to earn off from it.
Having an income-positive hobby makes a side hustle a little more bearable since you will be spending time doing something you already love. It can be creating short videos, managing social media sites for businesses to busy for it, or even baking and selling your creations. Identify your hobby, look for a market, and find a way in.
Create an emergency fund
There could be times when having a huge credit card debt was due to an unforeseen incident. Emergencies can come in various forms and degrees and a lot of times, your credit cards act as your safety net in your attempt to stay afloat. Your credit line becomes your lifesaver taking you as far as your limit can go.
This is why it makes sense to build up your emergency fund consistently over time. It might not make sense to put so much in a short amount of time because you could be compromising other areas of your finances in. Save up for it consistently over time so as not to pull anything away from other payments but at the same time, help give you some form of financial cushion from emergencies
It will also help keep you away from incurring more debt because in the absence of an emergency fund, you could be looking at your credit cards for support and that debt amount can get really big really quick. A few groceries here and there when you lose your job or a quick charge to buy a new computer can put you right back in the red.
There are a number of reasons why you might have a huge credit card debt but there are ways to help you overcome it.