It’s very important to know the rules of the credit card game before getting on the playing field because if you don’t, you could quickly find yourself in financial trouble.
The following tips will help new and experienced credit card users avoid unwelcome credit card debt.
DON’T accept a credit card without reading the terms. Choosing a credit card involves more than liking the issuer’s catchy commercial. Instead, evaluate the credit card based on the fees, interest rates, and rewards—if it’s a rewards credit card. Moreover, compare credit card terms amongst the various issuers to ensure that you are getting the best deal.
DON’T use your credit card to make everyday purchases. Items like food, clothing and gas shouldn’t be purchased with a credit card. Using your credit card as a substitute for cash is a habit that can quickly lead to debt. For ordinary everyday purchases, leave your credit card in your wallet and use cash or a debit card instead.
DON’T get into the habit of making minimum payments. Making only the minimum payment each month increases the payoff time and the amount of interest you’ll end up paying—which in some cases can be debilitating. For instance, if you have a credit card balance of $1,000 and pay only the minimum monthly payment, at a compounding interest rate of 18% it will take you over 9.4 YEARS to pay off this debt assuming you don’t charge anything further—and you will have paid $923 in interest! In other words, you will be paying back nearly twice the amount that you borrowed. Don’t fall into this trap!
DON’T use your credit card to buy items you can’t afford.
Living a borrowed lifestyle is the quickest way to get into debt. If you can’t afford a purchase today, chances are you won’t be able to afford it tomorrow, or even next month. Think twice about that purchase.
DON’T close a credit card without knowing how your credit will be affected.
There are times when closing a credit card can hurt your credit score. Avoid closing cards that still have a balance or those that make up a significant amount of your credit history.
DO make wise decisions when using your card. Using your credit card responsibly means recognizing which items you actually need (a necessity) or simply want (an impulse purchase). Avoid the “wants” as much as possible.
DO let your creditor know in advance if you can’t make your monthly payment on time. Forgoing your credit card payment is never a good thing. Most creditors will assist you if you notify them before you miss your payment. Call your creditor, explain the situation, and ask that any late fees be waived. Missed payments will also adversely affect your credit score.
DO stay within 30% of your credit limit. A sizeable percentage of your credit score factors in the amount of debt you have versus your credit limit. Keeping your balances low helps maintain a good credit score and are easier to manage.
DO negotiate a lower interest rate—especially if your current rate is higher than offers received from other lenders. The higher the rate, the more you will pay for carrying a balance on your credit card. Periodically evaluate the interest rate on your credit card to be sure you are getting the best deal possible.
DO review your statement each month. Don’t take for granted that everything on your credit card statement is accurate. Be sure that your last payment was applied correctly, you were charged the right amount for all of your purchases, and there were no unauthorized transactions. Dispute any errors with your credit card issuer within 60 days and report unauthorized charges immediately.
You can visit S&N Debt Solutions to learn more about resolving burdensome credit card debt.