Whether you use your credit card for daily purchases or keep it on hand for cash-flow emergencies, this method of payment can be both a help and a hindrance. Used responsibly, credit cards can help you build your credit history and even boost your credit score if youre paying the balance in full every month. However, when your credit card is used as a crutch, you can head down the path of accruing unnecessary and unwanted credit card debt. Using plastic in a number of ways can lead to some financial trouble. Avoid these pitfalls when pulling out the plastic, and set yourself up for a healthier financial future.
Financial planning 101 tells you to build an emergency fund for those inevitable expenses. Your car needs a new transmission, your air conditioning unit dies during the middle of a summer heat wave, or you face some unexpected medical expenses. Using some emergency savings for these purchases is a smart financial decision. Pulling out the credit card and racking up a high balance to cover emergencies is not. In some cases, using your credit card might be inevitable. You simply dont have the cash on hand to cover the unexpectedâ€”and the unexpected cannot be delayed. In these cases, establish an aggressive payment schedule to knock that credit card balance down. If you dont, youll risk letting that charge sit in your card for monthsâ€”or even yearsâ€”to come.
Paying the Minimum
The minimum monthly payment on your card is just thatâ€”a minimum. While you might enjoy having some extra cash in your checking account because you only have a small monthly credit card payment, youre not doing anything about knocking down that credit card debt. Paying the minimum payment might not even cover monthly interest fees, meaning you arent reducing your balance at all each month. If you stick to this passive payment schedule, you may face years of payment on a credit card balance, depending on how high it reaches. Plus, this gradual payment process certainly wont be gratifying.
Neglecting Your Statement
When your credit card statement comes in each month, you might set it aside, afraid to look at the balance. However, your statement deserves a detailed review. If you dont keep an eye on your account, you increase the risk of potential fraud. Look for any unexpected charges on your card and reconcile them with your credit card company immediately. If it appears someone got a hold of your credit card number and made purchases on your behalf, you can stop the fraudâ€”and potential identity theftâ€”quickly by carefully reviewing your statement. If you overlook it, you might not even know that a stranger is increasing your debt.
Ignoring the Fees
The introductory period with your credit card is a honeymoon phase. You have low interest rates and perhaps even 0% APR. However, if you dont read the fine print closely, you might be shocked when your credit card statement suddenly features fees that exceed your monthly payment. Overlooking these fees is a trap that can pile on the debt. Ignoring rising costs associated with your card means that you will owe more than you expect every month, without actually paying any more down on your overall balance.
A missed payment, even when unintentional, can make your existing debt even worse. Many credit card offersâ€”established interest rates, for exampleâ€”rely on on-time payments. When you miss a payment, even by just a day, your rates could skyrocket, which is probably in the fine print of that credit card agreement that you never read. When this happens, you again end up paying more on your credit card than you actually owe, which can increase your debt without increasing your payoff.
Credit card debt can accumulate quickly, especially when you use your card frivolously without any plan to pay it off. While paying off your credit card balance every month is ideal, a payment plan can help you knock down debt as well. By avoiding these credit card pitfalls, you can better manage your money and avoid rapidly accumulating debt that can take yearsâ€”and plenty of stressâ€”to pay off.
For people who need some advice on credit card debt, Sam Jones suggests http://www.uswitch.com/credit-cards/credit-card-consolidation/ where there is some good info on debt consolidation
This article is copyright free.