Credit Card Debt
Credit card offers are constantly advertised to us, all promoting the convenience of credit. Yet, credit card debt is never mentioned.
While credit cards offer easy options for spending in the moment, there are long-term, potentially damaging consequences if they aren’t handled responsibly.
The combination of these factors has unfortunately led to significant amounts of debt throughout the country. Many families now have credit card debt equivalent to a luxury car loan. As a result, huge chunks of their paycheques go to repayment as interest builds up. It’s no surprise that people end up in financial distress.
That’s not to say that credit cards are entirely evil. Using them doesn’t mean you have to accumulate debt and face credit problems. In fact, when used the right way, credit cards can be effective tools in your financial strategy.
Credit cards and your credit score
Are you aware of how credit card use can help or hurt your credit score?
A benefit of having one is that you can establish a solid credit history, which can help you achieve other financial goals, like buying a car or home.
However, you need to establish a plan for how to use them. You can assign credit card purchases within your monthly budget and plan to pay off the balance each month. That way you can avoid interest charges and keep your credit healthy, too.
Did you know that the bulk of your credit score is determined by whether you make your payments on time, along with how high your balances are? It’s in your best interest to make a point of keeping your balances low and paying on time each month.
Credit card advantages and disadvantages
In addition to establishing a good credit score, credit cards offer many other benefits. They are convenient and offer you the ability to make purchases when and where it suits you (online or even in other countries while traveling). Having a credit card makes it easier to do things like rent a car or a hotel room.
Another benefit of credit cards is the rewards programs. If you leverage rewards programs properly, you can save money when you cash them in. One word of warning: don’t ever make a purchase simply to get rewards. If you end up carrying a balance as a result and accumulating interest, that reward isn’t very “rewarding.”
Credit cards offer better fraud protection, typically, than cash in your pocket or your debit card. Purchases are more trackable, so you have a better chance of disputing anything questionable on your card.
One huge downfall of credit cards is the interest their companies charge you. Some cards have lower rates, but other cards have higher rates, which means that you pay a substantial amount of money if you let that interest accumulate. If you carry a balance with high interest rates, it can be a challenge to pay that credit card debt off, which means you get trapped.
Credit cards are a form of revolving credit, which means that your balance fluctuates month to month and so will your payment. This is a little different than an installment loan, where your payment is set every month. Open credit can be harder to budget for, so you need to anticipate that to manage your credit well.
We’ve talked about how credit cards can help you build up credit. By the same token, misusing your credit cards (i.e. missing payments, carrying high balances) can destroy your credit. It can take years to recover from abusing credit cards, if ever.
How to use a credit card
Don’t use credit to extend your spending power. As a rule of thumb, if you don’t have cash in your budget for a purchase, don’t turn to your credit card.
Don’t use credit to fund impulse shopping or make big ticket purchases you haven’t budgeted for. You are better off saving up and paying cash. If you feel like you may not be able to resist the urge to spend, leave your credit cards in another wallet and only take them out when it’s part of your plan.
Don’t store credit card numbers online. This may be more convenient, but it can make it far too easy to shop online without really thinking it through. When you do, ensure that the site you are shopping on is secure. Look for websites with a padlock icon that have “https” in the URL.
Be proactive with your payments. Don’t wait until the statement arrives in the mail. Take responsibility to make a payment each month on time.
It’s when you use credit to spend beyond your means that you start the credit card debt cycle in motion and move closer to financial distress.
How does credit card debt work?
To manage your credit cards responsibly, it’s important that you become knowledgeable. Making educated decisions around your credit use is your best bet to stay out of financial trouble.
One essential step to understanding credit card debt is to learn how it works in comparison to other types of debt, like your mortgage or auto loan. That helps you prioritize debts and organize repayments into your budget.
How do I read my credit card statement?
If you want to use credit wisely, you need to know how credit cards work. This helps you avoid common mistakes that can leave you with out-of-control debt payments.
Debt problems don’t just happen when people spend beyond their means; they can also occur when people don’t fully understand how credit cards work and what their responsibilities are in using them. This includes understanding your credit card statement and how credit cards can impact your credit score.
How do I get out of credit card debt?
If you’ve accumulated credit card debt, it isn’t too late to adopt good credit habits and work toward the future.
The first step is to stop adding to your debt and work to pay it off. Eliminating credit card debt means creating a timely and cost-efficient plan to take control of it. If you can do more, you should never be satisfied with only making minimum monthly payments. Minimum payments are usually made up mostly of interest, so it’s hard to pay your debt down if you take that approach. We have a credit card repayment calculator that can help you figure out some of the math involved in this process.
Still need credit card debt relief?
If you are already struggling with credit card debt, and are looking for a way out, give us a call at 1-844-402-3073 or request help now with a Free Debt Analysis.
Your credit report has an impact on many important aspects of your life. Your ability to borrow money can impact your housing situation, your ability to have a car, and your ability to borrow money when necessary.
When you are shopping for a credit card, the free t-shirt is not going to save you money or provide you with convenience. Look over the features, benefits, and provisions to be sure that you are applying for a card that will fit your needs and benefit your financial situation, not hinder it.