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Credit Card Debt

Credit cards are a convenient way to purchase small- or big-ticket items, not to mention the rewards you can earn. Yet, most consumers fail to utilize the potential of a credit card and the result is overwhelming credit card debt. If you use your credit card wisely, you can beat the credit card companies at their own game.

Effective Use of Credit Cards

Credit cards are instrumental for building good credit. In turn, good credit allows you to borrow money at a lower interest rate, which saves you money. However, frivolous use of your credit cards nulls the potential gains. Make your credit work for you by:

      • Only making purchases you can afford to repay at the end of the month.
      • Finding a card that offers rewards you will use.
      • Shopping around for a card with 0% interest and no fees for balance transfers.

Large purchases with your credit card will quickly build up credits or reward points. But, as you know, it also quickly builds up debt. The inherent danger is allowing a large balance to remain on your credit card for an extended time. Ideally, you would eliminate the balance immediately. However, even if you can't completely repay the debt, reducing the amount owed to 20 percent or less will benefit your credit score. Since credit agencies base their decision on loan rates on outstanding balances, you will greatly increase your chances of getting a favorable rate by keeping credit card balances under 20 percent of your credit limit. Being maxed out on every card is a clear indicator to a creditor you are a risky borrower.

You also want to search for rewards you know you can and want to use. Some credit cards offer frequent flier miles, but only for certain destinations and at inconvenient times of the year. The best reward cards are ones that give you cash or credits you can apply towards any purchase.

When seeking the best card, look for a low or 0 percent card that has low transfer fees. Using a credit card for debt consolidation is only beneficial if are able and committed to paying the balance off before the introductory rate spikes, which is typically around 12 months. If you don't pay off the balance, you may end up paying more interest than before you obtained the card.

The Pitfalls of Accumulating Credit Card Debt

The downside to using credit cards is accumulating debt. You must exercise extreme discipline when using a credit card or mounting debt will seriously hurt you. These are the most common ways consumers allow credit card debt to get out of hand:

      • Not paying off monthly balances.
      • Applying for too many credit cards.
      • Obtaining high interest cards or rates that balloon after the first year.

If you pay the minimum payment each month, then you're only paying interest with only a fraction of the principal amount owed plus interest. For example, if you have $5,000 of debt at 18 percent interest, you'll pay approximately $7,000 in total interest charges. You will also pay exorbitant interest charges by obtaining a credit card with an initial-low-interest rate and allow it to balloon to 20 percent or more after the first year. Our credit card debt calculator is easy to use to calculate your debt.

You will damage your credit score as well by opening too many credit card accounts opened in a short amount of time will diminish your credit score. It is harder to keep track of your debt amounts, and you increase the potential total debt.

Be Proactive Concerning Your Credit Card Debt

Credit cards can be valuable if you use them properly and when you optimize rewards. The financial snare of credit card debt can become overwhelming if you fail to use credit efficiently. If you are suffering from a tremendous amount of credit card debt, you can find help with debt consolidation or debt settlement. Eliminating your credit card debt and then effectively using credit cards in the future can bring you back to financial harmony.