Credit Card Debt Management

It’s a known fact that expense accounts can spiral out of control. This is as much true for government employees as for corporate employees, judging by recent news that federal workers were caught charging lingerie, online dating services, iPods and other superfluous items to government credit cards. In the current economy, few organizations can really afford extravagant spending in the name of client relations, let alone any stray personal items that may fall outside the bounds of company-approved purchases.

MasterCard has an answer. The inControl credit card will enable supervisors to set a spending limit and the time parameters within which spending can occur, list which hotels and restaurants fall under the umbrella of acceptable spending, and even receive real-time updates by e-mail or text message regarding what purchases are made with a particular card. It really is a remarkable service.

“It will help reduce maverick spending, improve compliance with corporate policies, and simplify accounting,” Steve Abrams, MasterCard’s global head of commercial payments, told BusinessWeek earlier this month.

Undoubtedly, the launch of this new product — offered in conjunction with Orbiscom technology and the Royal Bank of Scotland — will forever change the way business is done. Maybe Uncle Sam should sit up and take notice.

Credit card payments can strap your budget and have you financially imprisoned in no time. The more you use them, the higher your payments increase, which means most people have to use the cards more when their money runs short. The 18- to 34-year-old demographic is the hardest-hit right now. With social pressures for this most coveted advertising demographic to buy everything under the sun, the group is becoming known as “Generation Broke,” as the Intelligent Ignorance blog humorously points out. Set aside all psychological analyses as to why they feel the need to dig themselves deeper into debt to maintain a certain lifestyle, let’s look at the ABC’s of digging Generation X and Y out of debt.

It boils down to savings — you know, that little account that bails you out of emergency situations when you don’t want to rely on your credit cards? The other thing is to define an emergency situation that requires you to dip into your savings account (it’s not when the Jimmy Choos are on sale). The following four tips can help you stretch your dollars, so money can go into your all-important savings account and ultimately, toward paying off your credit card balances.

Find an inexpensive hobby. You can certainly find other uses for your time than shopping, dining out, visiting the movie theater, etc. What about things that cost little or no money, like exercising, blogging, reading, making art or music, volunteering, or going on a picnic? All you’re out is the gas money to get there, which come to think of it, could be quite a lot. You could go really thrifty and invite friends over to your house for a game night or bonfire and let them spend their gas money instead.

Rediscover your kitchen. Far too many people spend far too much money on dining out. It is so much less expensive to cook — and you have leftovers for lunch or dinner the following day! I once calculated that my family was spending a shocking $600 per month on restaurants. If you must eat out, try the dollar menu. There’s some good stuff on that list!

Plan in advance for gift-giving. You may see a wedding, new baby, birthday, or holiday in your near future. Start setting money aside now for those seasons. You can even go ahead and buy the gifts while you’re out and about, when you see nice things on sale. That way, you’re not scrambling at the last minute and overpaying for convenience. This is particularly true during Christmas, the season when most people tend to overspend dramatically.

Buy clothes secondhand. We’ve all known the person who must keep their closet filled with only the latest fashions. They toss out old clothes that are “so last summer.” Maybe your track record shows that you in fact are one of these people. Word to the wise: Stop being one of those people and start benefiting from their generosity. That’s right, these are the people who are filling secondhand stores like Plato’s Closet and Goodwill with beautiful, fashionable, name-brand clothing at low, low prices. How generous! Another shopping strategy is to pick well-made, durable, but versatile pieces that work well with a variety of other clothing items, so you’re splurging only on a few special items instead of on everything. Happy saving!

Zero APR offers can be awfully enticing, especially when you’re staring at a frighteningly high APR on your current card. But really think this through before you jump at the offer. There are some pros and cons to consider:

PROS

1) It allows you to pay off your debt faster. Transfer your old debt to the new card, and without throwing all that money at interest, you can pay more toward principal. However, make sure you have a workable plan beforehand to get out of debt, and more importantly, that you stick to the plan!

2) It frees up money to go elsewhere. True, but the wisest use of a zero APR card is to put the extra money toward your credit card’s principal balance and get the thing paid off.

3) It’s a chance for a fresh start. You swear you’re going to do it right this time. Well, it’s going to take an enormous amount of self-discipline and you will need to change your prior spending habits. This new card may offer cashback rewards or frequent flyer miles or some other perk, but don’t go use that as an excuse to go overboard on the spending!

CONS

1) After the introductory period (typically 3 months or more), the interest rate can be relatively high. If possible, you’re probably better off going with a low-APR card. Either way, make sure to pay your bill on time so your interest rate won’t jump up to a high default rate.

2) Having too many open credit cards can hurt your credit score, especially when the cards are newly opened.

Credit card companies are experts in marketing. They will throw in all kinds of perks and gimmicks to draw in applications. So next time you’re staring at an enticing credit card offer, remember to think before you leap.