Credit card debt is making a comeback.
According to the Federal Reserve, consumer credit outstanding increased for the fourth month in a row in November, rising at a 7% annual rate, up from October’s 6.2% pace.
Most of that increase was due to nonrevolving credit, including student and auto loans, which rose nearly 10%. But revolving credit, which primarily consists of credit card debt, rose a little more than 1% in November, after rising nearly 5% in October.
This doesn’t necessarily mean consumers are returning to their bad habits of the first half of the 2000s, when many people turned to borrowing as they spent more than they earned.
But it could spell trouble for some, especially with higher payroll taxes kicking in this year.
Here are 11 ways to keep that credit card debt in check:
Create a budget. While you probably know to the penny how big your paycheck is, you may not have a clue how much you spend every month.
When my wife and I started writing down our expenses five years ago, it was a real eye-opener.
It’s easy to create a budget. Using either a computer spreadsheet or a simple sheet of paper, record every purchase you make during the month. This includes your mortgage, debt payments, utility bills, groceries and that morning cup of coffee.
A budget makes it easy to see where you can make cuts without much pain. You’ll also be able to see at a glance how much of your pay goes to debt service and how much you can afford to pay.
Consolidate multiple balances. Shop around for a low-rate balance transfer offer.
It will give you a sense of accomplishment just to get rid of all those extra bills. Then attack that one bill.
Pay off the balance before the low-rate period expires. If it expires in 12 months, for example, divide the balance by 12 and try to make that your monthly payment.
Negotiate a lower interest rate. Call your credit card lender and ask them to lower your rate. If you tell them you’re thinking about transferring your balance somewhere else, or transferring your balances to one of their competitors, they might be very receptive.
Pay off your highest rate cards first. If you can’t consolidate your loans, concentrate on paying off your most expensive debt.
Stick to it every month. Pay as much as you can. Even if you make the minimum payment one month, make it — don’t ever miss a payment. Missing just one payment will force you to jeopardize your low rate. You could also be subject to late fees and a penalty interest rate.
Check your credit card statements carefully. Always save your receipts until you get the statement to make sure you haven’t been overcharged for something.
Stop spending until you pay off old balances. The best way to keep your debt from growing is to simply stop spending. Put yourself on a cash budget and only spend up to your allowance.
Pay your bill before it comes. If you must use credit cards, try to pay off big purchases before the bill arrives. It’s a real financial morale booster when you get a much smaller bill than you had expected.
Close credit card accounts that you don’t use anymore. It’s a good idea to close accounts you no longer use, but there are some accounts you shouldn’t cancel, such as those more than three years old. Instead, cut up the cards or stick them in an out-of-the-way place.
Pay off in full any new cards. You may have agreed to accept a new card or two in order to take advantage of price discounts during the holidays. Pay off those bills in their entirety and either cancel the accounts or put the cards away.