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8 Dos and Don’ts to Avoid Excessive Credit Card Debt

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Before you drive yourself into the ground with debt get a license to properly operate your credit cards. Besides a debt burden, massive card debt can kill your credit score. 

According to an online survey by NerdWallet, 55%of respondents don’t know when charged interest on credit card purchases begins. Of these respondents, only 8% are aware of how a late credit card payment can affect their credit score. Only 40% are aware that paying an annual fee is only worth it if the rewards surpass the cost of the fee.

Here are eight very important credit card tips:

1.    Do not use credit cards to finance an unaffordable lifestyle. If consumers are constantly using credit cards and are unable to pay the bill each month, then they should consider whether they are using their cards to try and finance unreasonable spending.

2.    Consumers should avoid using credit cards if they are already in financial trouble. Finance charges and other fees will add to consumers’ debt burdens. However, using a credit card in a time of financial difficulty can be better than taking out a home equity loan, where a home is put on the line.

3.    Don’t get hooked on minimum payments. Some credit card issuers have set their minimum payments as low as 2% of the balance. Others may set it to 4%. If consumers pay only the minimum, it will take a long time to pay off their debt. For example, if they owe $5,000 on an account with 18% APR, making 2% payments will take over 44 years to pay off. Also, consumers will have paid $12,431.00 in interest.

4.    Don’t run up the balance in reliance on a temporary “teaser” interest rate. Money borrowed during a temporary or promotional rate is likely to be paid back at a much higher permanent rate.

5.    Make credit card payments on time. Consumers should avoid late payment charges and penalty rates if they can. Bad problems get worse fast when consumers have late fees and higher rates to pay during financial difficulty. It’s worth calling to ask for a fee to be waived if consumers were accidentally late on a payment, or have a good excuse, but this only works a limited number of times.

6.    Avoid the special services, programs, and goods that credit card lenders offer to bill to their cards. Most of these extras – fraud protection plans, credit record protection, travel clubs, life insurance, etc – are often bad deals.

7.    Beware of unsolicited increases to credit limit. Don’t assume that this means that a consumer’s lender thinks he or she can afford more credit. Lenders generally increase limits for consumers that they think will carry a bigger balance and pay more interest.

8.    Don’t max out cards. It’s easy to get hit with over-limit fees. Also, a credit card account close to its limit will cause a big drop in a credit score. Consumers should be aware of whether or not their account allows them to spend over their limit, as this is optional. If possible, consumers should try to stay below 30 percent of their credit limit.

The national nonprofit American Consumer Credit Counseling has released some helpful tips on what consumers should consider when using credit.

ACCC is a 501(c)3 organization that provides free credit counseling, bankruptcy counseling, and housing counseling to consumers nationwide in need of financial literacy education and money management.

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