Prevent and Repair Credit Card Debt

A credit card is a very delicate instrument because it requires a level of responsibility and financial maturity that not all consumers have. After all, using a credit card means paying off the debt within the next month, throughout the year, or simply in a series of periodic payments. Of course, finance charges are building up in the meantime and, if you fail to make a scheduled payment, your credit report will suffer. The following article describes ways for consumers to avoid building up credit card debt, and if necessary, methods to repair the damage already incurred from excessive credit card debt.

Keeping Grounded in Reality

Whether the cardholder intends to pay the credit card balance off within a short period of time or to stretch it out for awhile, he or she must be continually aware that this money is borrowed money. Often, credit card holders look at their credit as additional cash in their pocket. This is when the troubles start. While using this credit as if it is earned income, it is building up finance charges and increasing the cardholder's debt burden.

This is why it is very easy to lose control of a credit card. It requires discipline and knowledge of the basics of personal finance in order to prevent the creation of an overwhelming debt. This is why young adults are typically the ones that get into the greatest amount of trouble when it comes to credit card debt.

Estimate Your Earnings

So, if a cardholder finds himself in the difficult situation of owing money that he won't be able to pay back any time soon, he needs to establish some parameters in his life. To do this, he must first make an estimate of his annual earnings.

Once this has been determined, he must then calculate all of the different costs of maintaining his lifestyle. This includes ALL expenditures -- rent, insurance, gasoline, car maintenance, food, clothes, medicines, entertainment, school, and life's little luxuries.

If, after making this estimate, the cardholder finds that he spends more money than he earns, then there is a huge problem. The reality is that he has been living an illusion provided by the credit card. If the cardholder makes more than he spends - great! This means he will not have to make big adjustments in his life in order to pay the card.

Create a Plan

Whether you are living above your means or not, you still need to create a plan. So the primary question to ask is how am I going to pay for the card?

The easiest way to develop a plan for paying off the card is to determine a fixed amount of money that you can pay off each month. The amount you select should allow you to still pay your other bills. After all, it doesn't make sense to stop paying an insurance policy, for instance, in order to pay off a credit card debt. Similarly, you should still allow yourself some money each month to buy the "extras" that you enjoy if there is enough money leftover to do so.

Unfortunately, all of this planning may not be enough for the bank if you have already fallen behind on your payments. In this case, the credit card company may cancel the credit card and consequently report you to the credit bureaus. That's a pretty serious situation because it damages your credit and takes away the convenience the credit card provides. After all, without a credit card, you cannot make purchases online with many retailers and you won't even be able to make reservations for a car rental or for items such as airline tickets. Therefore, it is absolutely critical to develop a plan before you start to fall behind in your payments.

Take Advantage of Prepaid Debit Cards

If you have really hurt your credit or you know you simply cannot be trusted to monitor your spending, you might want to consider applying for a prepaid debit card. With prepaid debit cards, you can still enjoy the convenience of card ownership but your spending will simply be restricted to the amount of money you prepaid on the card ahead of time, or a portion of that amount. This can help ensure that you spend only what you can pay for. Equally as important, there are several prepaid debit cards that will actually report the activity of their customers to the 4 major credit bureaus, helping to improve or reestablish your credit if you have previously damaged it from failure to pay your debts.

Once you have proven yourself to be reliable with your prepaid card, which may take a couple years, the bank may offer an upgrade to an unsecured credit card. In this case, you will not longer need to make payments ahead of time and an actual line of credit will be extended to you.