So you finally did it: after years of diligently and painstakingly paying to reduce your $15,000+ credit card balance, you have finally done it. To say that the weight lifted off your back is huge is an understatement!
There is only one problem: this balance was incurred after having already paid a similar balance a few years back, and after you had vowed to never go through this again. So what happened? Sure, you could say life happened, or various economic factors led to this. But let us face it, while it is not totally your fault, a lot of it is. You simply didn’t build any or enough resiliency and guardrails into your credit card usage to prevent this from happening or spiraling out of control. Again!
By doing this, you are building a semi-autonomous system and processes that ensures you are not overspending -unless absolutely necessary-regardless of where you are or what the situation is. Let us go through some of these guardrails, to ensure you don’t ever fall in this debt trap again.
No Emergency Fund Savings
We had to started with this, because anecdotally, I have fallen a lot for this: something breaks down, usually card-related, and since I don’t have any or much of an emergency savings built up, I would have to resort to credit card use. I can’t stress the importance of having an emergency fund, one where you can dip into for absolute emergencies and necessities, thus negating the need to use your credit card instead. How much you save in your emergency fund, and what to use it for all come down to personal situations and would differ from person to person.
Solution: Not only do you need to start an emergency fund right away, it is also important to make sure it is at least 2-3 times your monthly net income. The bigger, the more peace of mind.
Not Doing Away with Old Habits
Addicted to Ubereats? How about frequenting the mall too much? Oh, and about what your various monthly subscriptions that you don’t even remember and are not sure which service you are paying for anymore? In other words, when we are not paying attention or not being intentional about what we are using our credit cards for, it is easy for our card usage to spiral out of control and not even know it. In fact, with convenient services like Ubereats and other food delivery services, things are so easy, you don’t even question these expenses, as you look at it as an almost essential service.
Solution: start by going through your credit card statements from the last 3 months and spot things that are more of luxuries and wants than necessities and decide to either eliminate them completely, or set a maximum amount you want to spend on them. For example, if your Ubereats and Amazon shopping cost you $400 on average each of the last 3 months, you can decide to cap it at $150.
Not Allocating Enough in your Budget for Credit Card Payments
Even if you fail to implement the above, this is your last defense against credit card misuse and overspending. Your last chance to correct things of sort. That is to ensure you have allocated enough in your budget to pay your monthly credit card balance each month. You literally build it into your budget, although this may not be a fixed amount. Once you have paid off your balance, you can rededicate this amount to your saving
Solution: Unless you are not carrying a big budget, it is important to set aside minimum of 10-15% in your monthly budget to paying towards your balance.
Falling in the debt trap cycle is a common problem that many suffer from, going from a stage of huge relief of paying off a massive debt, only to fall back into the same hole once again a few months or years later