Plus, being a conscientious credit card user can help boost your credit rating. However, these little pieces of plastic can also be a curse, especially if you're already swimming in debt or just don't know how to keep a handle on your finances. Thousands of consumers have trouble getting their credit card balances under control. If you're among these consumers, don't despair. You'll make your debt more manageable once you choose to change your spending habits.
Take a giant step in this direction by avoiding—or stop doing—these six major credit card mistakes. Don't do it. High-interest rates charged by credit card companies will keep the bill growing every month. Instead, send the highest payment you can afford and reduce spending in other areas to focus on paying off the debt.
It might be worth going without extras like the newest smartphone or latest fashion if it means you'll sleep easier at night, knowing you'll soon be debt free. It may not feel like you're saving money when you increase credit card payments, but you are.
Money is probably already tight if you're already in debt, so freeing up extra cash will give you some breathing room for the long haul. Whether you use this money to accelerate debt payments, start an emergency fund or invest in retirement.
The power of compound interest will start working in your favor instead of against you. Another trap people often fall into is using their credit cards for regular, everyday purchases.
Unless you follow a monthly budget and can easily pay your credit card balance in full each month, charging non-discretionary expenses on a credit card can be dangerous. By keeping common purchases like groceries and utility bills off of your credit card balance, you'll take a major step in getting spending under control. There's no reason to incur interest charges on necessary items that you should buy directly with monthly income with cash, check or debit card.
Credit card rewards are usually worth far less than the extra interest you'll accrue if you can't pay off the money you spend to earn those bonuses. You should also avoid signing up for multiple credit cards, regardless of bonuses. If you already know you don't manage credit cards well, don't add temptation in the form of additional cards.
It's also easier to miss a payment deadline when you have more cards than you can manage. Remember, a few late fees or interest payments will quickly obliterate those sign-up gifts or rewards. You can use your cards more frequently once you have your debt paid off and know how to avoid new debt.
As long as you pay your balance in full and on time each month, there is nothing wrong with using credit cards instead of carrying cash or to take advantage of rewards like cash back or frequent flier miles.
Just make sure those purchases fit within your monthly budget. Credit card companies employ tactics like sending checks in the mail, encouraging you to use them to pay bills or to treat yourself to something nice, but they rarely make it clear that these checks are treated just like cash advances. Taking a cash advance is dangerous because you start to accrue interest immediately, unlike regular credit card purchases.
To add insult to injury, the credit card company may not consider the cash advance to be paid off until you've zeroed out the balance for your other purchases. The best thing to do with these checks is to shred them as soon as you receive them, avoiding the temptation while preventing would-be identity thieves from snagging account numbers out of the trash.
Assuming you owe enough that your calculated minimum payment exceeds your issuer's fixed floor rate, your minimum payment will probably be calculated in one of two ways:.
This method is most often used by credit unions and subprime banks, according to a study by the Consumer Financial Protection Bureau. When estimating next month's minimum, keep these factors in mind:. Overdue payments or over-the-limit balances can change the math. Billing cycles often don't start at the beginning of the month. Make sure you know when your billing cycle ends and begins before estimating. Your statement balance will differ depending on whether it begins on, say, the 11th of each month versus the 13th.
Why isn't your minimum smaller? Federal guidance directs issuers to avoid "negative amortization. That's because if you paid the minimum on it, your payment would be lower than your interest charges.
Your balance would continue to grow even if you didn't make new purchases. With today's minimums, by contrast, your balances will generally go down each month — though only slightly — assuming you don't make new purchases.
After all, they're the ones who spent the money using the card and card balances are widely available on the cardholder's online and mobile account. Yet the fact remains that with the revolving debt model, credit card consumers can quickly and easily get into trouble by overspending on credit card debt - as they technically can spend right up to their credit card limit. That differs with fixed-payment debt models like mortgages, student loans and auto loans, where the loan is fixed and every monthly payment is pre-set.
In short, there can be surprises with the monthly credit card bill, and it's up to the cardholder to be aware of them. The good news is there are proven, tried-and-true ways for Americans struggling with excessive credit card debt to cut, or possibly eliminate their plastic debt levels.
The key to deploying these strategies is having the discipline to use them, and that's not always easy, given how busy Americans are and how easy it is to be distracted by other financial needs and obligations. Whether it's paying for student loans or dealing with a family illness, among other issues, catching up on credit card debt may not be a priority for Americans, but it should be.
The upside is that most Americans realize the damage high credit card debt can cause their household budget and how it can take a wrecking ball to a credit score. Use these strategies to cut credit card debt , and see what a difference a clean credit card balance sheet means to your financial life.
Let's face it, if you can't maintain a clean credit card account each month then you're staring at big trouble. But if you double your regular payment every month, you'll gain some serious ground on your credit card debt, and pay it off much faster.
Conduct some much-needed due diligence and read your credit card contract closely - focus especially on the annual percentage rate APR and how it is calculated by your provider. Your card's interest rate makes a huge difference in how much you pay each month, and if your contract shows you're getting a raw deal, start shopping for a better card and stop using the card you have immediately. If you feel you're not up to diving into a card contract, have a financial adviser or credit specialist do it for you.
They probably won't charge you much, if at all, but a modest fee is worth it when you can save hundreds - or even thousands - by saving money on credit card rates. Extreme optimizers might be able to achieve more value.
When choosing the best balance transfer card, we focused on the card that provides consumers with the cheapest way to pay off their debt rather than the number of rewards they could potentially earn. When you're in credit card debt, your primary focus should be repayment. Earning rewards should be seen as a bonus, and you don't want to spend beyond your means in order to earn points. The five-year rewards total and the interest rate and fees estimates are derived from a budget similar to the average American's spending and debt.
You may earn a higher or lower return depending on your spending habits. Skip Navigation. Follow Select. Our top picks of timely offers from our partners More details. SoFi Personal Loans. LightStream Personal Loans. We may receive a commission from affiliate partner links. Click here to read more about Select.
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