In Banking-Finance

Credit cards have many advantages. They help establish credit so buying a car or home can be possible, they are useful in the case of an emergency, and they often have perks such as cash back or travel rewards.

However, staying out of credit card debt can be tricky. It can be easy to lose track of how much you have spent, and since it is not cash immediately coming out of your bank account, you can feel like you have more money than you actually do!

Have no fear. Staying out of credit card debt can be done if you are proactive and manage your cards appropriately. Here are five do’s and three don’ts to help you use credit cards wisely and stay out of debt.

  • Do pay off your balance every month: Interest on your purchases can and does add up quickly. If you pay off each statement in full every month you will actually never incur or have to pay interest.
  • Do set up a budget: Decide how to allocate your earnings every month. Try and account for every dollar including putting money in savings. Then simply use your credit card to pay for some of those expenses. Since they are already line items on your budget you will have the money in your account to pay your balance off in full.
  • Do make your payments on time: Late fees for credit cards vary but can be at high at $39 and often come with an interest rate increase. Not only do you have to pay the fee but any balance you have on your card will now have a higher interest rate. Set a reminder on your calendar or on your phone to make sure you pay it on time.
  • Do read the fine print: The terms for every credit card varies and knowing the perks and downfalls of your card is critical. Did you know some cards charge you extra when you use them internationally? Some cards have annual fees that are only listed on the terms.
  • Do read your statement every single month: Take a moment every month to look at your statement carefully. Noting any odd charges right away will allow you correct them swiftly. Also your statement will include any updates from your bank about your card. Lastly, reviewing your statement will help you notice where you are spending your money and help you avoid frivolous spending.
  • Don’t buy things you cannot afford: If what you are going to purchase is not on your budget do not buy it just because you have a credit card. It is very easy to get in a habit of purchasing expensive items and putting them on credit to pay off later only to find yourself making minimum payments unable to pay off the balance. Budget, save, then buy.
  • Don’t take cash advances: Cash advances on credit cards carry a hefty price tag. Not only do you have to pay the interest rate on your credit card for any balance you carry, they come with a 2-5% fee for withdrawing the cash. If you need $1000 you will pay anywhere from $20-50 in fees. If you withdraw from an ATM you will have to pay those fees as well.
  • Don’t just pay the minimum: When you pay the minimum payment due on your credit card your balance continues to accrue interest. And it takes a long time to pay off a card when you only pay the minimum. A $1000 balance with a 25% interest rate and a minimum payment of $50 will take you over two years to pay off and you will pay over $400 in interest.  

In the long run, credit cards can be great if you are savvy and use them wisely. Staying on top of your spending, working within a budget, and paying attention to details will help you get the most benefit credit cards have to offer!

Unfortunately for many in poverty, credit cards are the only option when living paycheck to paycheck. It is a stressful life to live, and once you are in the horrible cycle of using credit cards to settle debts, it becomes nearly impossible to climb out of debt. When you start losing the ability to live without a credit card, then it is time to look into help. Luckily, my team and I at The Power Is Now is here. Please feel free to send me an email at eric.frazier@thepowerisnow.com for advice on programs in your area to bring you back to financial security and a healthy credit score. The power is now to change your life for the better!

 

Eric Lawrence Frazier, MBA

President and CEO

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