Credit card use is so common these days that it is hard to find a single family that doesn’t own a credit card. Figures released by the National Foundation for Credit Counseling show that in 1990, the average American family with at least one credit card had credit card debt of around $3000. Ten years later, the figure reaches nearly $8000.
Undeniably, credit cards are extremely useful, particularly during emergencies. However, many are also facing credit card problems. Having credit cards in the wallet can result in expensive impulse purchases. It’s little wonder that so many people, including those living on low incomes, are in debt because of excessive and uncontrolled credit card use. Here are some suggestions to use credit cards wisely.
Consolidate Credit Card Debts
Those with multiple credit cards often find it hard to manage money and debt. With more bills to pay, keeping track of them can be a real challenge. Also, the amounts accumulated on all the different credit cards would become due for payment within a few days or weeks of one another, giving the credit card holder little time to repay all the bills on time. The resulting higher interest rates can cause unmanageable debts. A good way to relieve credit card debts is by consolidating them into one card.
Find Lowest Interest Rate Credit Card
There is increased competition in the credit card market and some companies do offer no frills credit cards with lower interest rates. Shop around and find one with the best interest rate. Those wishing to consolidate their credit card debts should also consider companies offering 0% deals for the first six months on any balance transfer, says financial planner Justine Davies, author of How to Afford a Baby (Sydney: ABC Books, 2007).
“It’s not a long-term strategy but can help you through the next year while things are a bit tight. Just make sure you read the fine print as there can sometimes be subtle fees and charges not apparent at first,” she cautions.
Some companies also offer no annual fee credit cards. Check these out and again, read the find print before you apply for such credit cards.
Avoid Cash Advances
Many credit cards also double as ATM cards that give holders instant access to cash but often with very high fees. It’s convenient but definitely won’t help in managing debts! Sometimes, credit card companies may send certain checks for customers’ “convenience” in getting cash advances. These checks allow them to pay for items that cannot be usually paid with a credit card, such as utility bills. “But then you are paying very high interest on those things,” say Cheryl Kimball and Faye Kathryn Doria, authors of The Everything® Get Out of Debt Book (Avon, Massachusetts: Adams Media Corporation, 2002).
Those behind on their utility bills should call the companies concerned to work out a simple short-term payment plan, Kimball and Doria suggest. “Don’t get yourself in even more debt with high interest to pay another debt,” they stress.
Use Credit Cards only in Emergencies
This is easier said than done. Most times, the “emergencies” are impulse purchases in disguise. Kimball and Doria recommend lowering credit limits so that the credit card will not be used recklessly. A credit card holder with a credit limit of only $300 to $500 is unlikely to spend on optional purchases.
Kimball and Doria also suggest carrying around a piece of paper with the credit card number, expiration date and phone number for customer service. In the event of a real emergency, for instance the car breaking down or an unexpected overnight stay, these details will be sufficient for the vendor if the vendor is told the card is physically unavailable when the emergency takes place.
Learn Credit Card Discipline
Using credit cards requires a lot of discipline. If possible, pay off the balance in full each month and of course, don’t be late with payments. Many credit card companies now charge very high late payment fees to discourage late payments. Those in the habit of paying their credit card bills late should just cancel the card.
Leave Credit Cards at Home
Credit card holders should leave their cards at home and carry them only when they go on a trip or work outstation. This will reduce the chances of impulse purchases. Without a credit card in hand, one would have more time to think through about the purchase. Are the items necessary? Are they within the budget? Can they wait a few more months? With these questions going through the mind, rational thinking will set in. More often than not, impulse purchases are just that and totally unnecessary.
Credit cards are not evil. It’s the ways they are misused that can cause mounting debts. This can be prevented by consolidating credit card debts; avoiding cash advances; using credit cards only in real emergencies; learning credit card discipline and leaving credit cards at home when out and about.
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