Common Sense Do’s and Don’ts with your Credit Cards
For the overwhelming majority of credit card holders out there, they know how to manage their money. They know they shouldn’t be running up huge balances on their credit cards, but it happens anyway. Sometimes, this is unavoidable. A sudden loss of a job or a major illness taking over the family requires money to be spent where it can be spent. But for others, it’s simply a lack of budgeting and the idea that, hey, we can buy what we want now and simply pay minimums until it’s all paid back. The problem with that idea is when you really break down how much you are paying in interest.
Let’s say you have a credit card that has a $5,000 limit and it is maxxed out to the brim. The average interest rate on credit cards in the United States is right around 16 percent. If you stuck to the minimum payments every month, it would take you TWELVE years to pay off your debt. That’s right. 12 years! And that’s assuming you don’t ever use that card again and do even more damage to the balance you’re trying to pay off. And how much extra money are you paying over that 12-year period? How about a cool $2,500 in interest. For most people that happen to have an extra two and a half thousand dollars lying around, their first option isn’t to give it away to a bank. So, what can you do to avoid this trap? Here are a few easy steps you can take to make sure you are in the black with your credit cards.
Make a firm budget, and stick to it. This is one of the most simple, yet overlooked steps when it comes to credit card use. Most people have a fixed amount of money that comes in to their homes once every two weeks, and they also have a fixed amount going out in utilities, mortgage payments and food/entertainment. Chart all of this money flow and you can see how much you have left over to pay off your entire balance every month on your credit cards. Remember, credit cards can be a huge boost to your life, they can help your credit score, and you sort of need them to do things like shopping online, renting a car and a million other things. You don’t want to destroy your cards, you simply want to control what you’re spending.
Target one card at a time for serious balance reduction. Chances are, you have more than one card, and chances are, you have one card that is absolutely killing you. If you aren’t getting any offers to transfer that balance to a lower rate card, the best thing you can do is to channel every bit of available resources you have towards paying it off, and quick. Nothing can help your credit score faster than paying down a credit card fast. You can recover 20 or 30 points in a six month period if you pay it down enough, and then you won’t have to worry about things like interest rates and fees.
For the majority of people, the right do’s and the wrong don’ts are common sense. The hard part is self control. If you can learn to put that card away and only use it when you can pay off the balance at the end of the month, you will be well on your way to credit nirvana.