A credit card is a powerful tool. It can offer you convenience and ease. In our world these days, many things just aren’t possible without one – buying online or renting a car, for example. They are a great tool, but they can get you in a lot of trouble if you don’t use them responsibly. They can quickly get out of control and cause you problems. They have high interest rates which can add up and bury you in debt. In the majority of personal bankruptcies, credit cards have played a major role. Here are 7 tips you can use to avoid getting in trouble with your credit cards:
Don’t follow their payment rules. Credit cards companies have minimum payments. If you only pay the minimum payments, you will be paying forever. It would take you 44 years to pay off a $4,500 balance using just the minimum payment each month. The minimum payment allows the interest to build up very quickly, too. That same $4,500 balance on a typical card would build up $17,000 in interest by the time you pay it off. That isn’t good. Pay as much as you can afford everything month. Hopefully, that will mean much more than just the minimum payment.
Be careful of fees. Banks and credit card companies make millions of dollars every year by charging their customers fees for everything they do. Some of the fees are obvious – late payments, getting a new card, ordering another statement for your account. Those fees are obvious and you probably already avoid them whenever you can. More important, though, are the fees that you probably aren’t aware of. Some cards have a fee for balance transfers or even fees for talking to a real customer service agent instead of a computer. There might even be inactivity fees if you don’t use your card for a few months. Look over your agreement to understand what fees are associated with your card and do all that you can to avoid them.
Stop when you are in trouble. If you can’t afford to pay your minimum payment and your problems look like they are going to continue into the future, don’t keep using your card. Building up higher balances isn’t going to help anything. It is just going to cause troubles. Stop spending, look at your situation, devise a plan to get out of trouble and stick to it. Once you have everything sorted out and your finances are back under control you can start using your cards again.
Talk to your lenders. If you think your interest rate is too high or your annual fee is too much, talk to your lender. If you have a good history with the company, they will often lower your interest rate on your credit card or lower or waive the annual fee just because you asked. They certainly won’t do it on their own, though, so you have to talk to them. It is a lot cheaper for them to give you a break in order to keep you than it is for them to find a new customer. Take advantage of this and reap the financial benefits.
Understand your credit report. Your credit report is what lenders use to decide if you can get a loan or credit card and to determine the interest rate you will be paying. You can have access to your credit report and you can improve your own credit score. There are tips on this site on how to do that. Doing work on your credit score can lower your interest rates and save you hundreds of dollars over the course of the year.
Don’t go overboard. Some people have a whole wallet full of cards. You don’t need them. If you have them you might be tempted to use them and get yourself into financial troubles. Slim down your cards to just a few that you will have in case of emergency or regular use. Keep the debt under control and you will stay in control.
Free stuff is good stuff. As long as the interest rates between different cards are about the same, you might as well use the one that has the best bonus system. Shop around for the rewards plan that will add up the quickest and can be used for things you actually use. If you are going to be spending anyway, you might as well get as much as you can for it.