Managing Your Credit Card Debt
Credit card debt management can be greatly helped along by the responsible use of your credit cards; use them unwisely and they can lead to credit card debt, credit counseling and credit repair. We've all done it - applied for a credit card, intending to use it for "emergencies only," or "just for big ticket items," like a plasma TV or new refrigerator. But pretty soon you’re pulling out the plastic every time you go to dinner or see a great new video game, and your balance grows and grows.
Avoiding Credit Card Traps
The headlines in the sales letters are irresistible, but it's the fine print that most often sabotages those credit card debt management good intentions. Unfortunately, few of us really read the fine print when we apply for those credit cards in the first place - and we don't realize just how fast we are getting off track with out credit card debt management plan each time we use the card. If you have more than one credit card (and most of us do!), you’ve probably fallen victim to a number of credit card “traps” that can multiply your debt faster than you can say, “Put it on my card!”
Credit Card Debt Management Trap Feature #1: Introductory Rates
Credit Card Introductory Rates are one of the most popular come-ons that credit card companies use today and many people use them as debt consolidation credit cards. They offer either 0% or a very low interest rate for the first few months - and give you this same low rate if you want to transfer a balance from another card.
Credit Card Introductory Rates
are not Usually Beneficial in the Long Run
This sounds great if you owe a lot on a high interest credit card and you’d like to reduce your rates by using the card for quick and easy credit card debt consolidation - but be sure to read the fine print. Confirm what the new credit card’s interest rate will be when the introductory rate expires. If it ends up higher than your current rate, it isn't worth the switch unless you can pay off most of the debt during the introductory period.
Some low introductory rate credit cards also impose stiff penalties if you transfer the balance again or if you pay off the full amount before the low rate expires, negating any debt management benefits you might initially receive. Look for a card that offers the introductory rate for at least six months and confirm how the rate is applied. Some credit cards offer the lower rate only to balance transfers, but not to new purchases or cash advances. You could be in for an unpleasant surprise if you use your new credit card for a shopping spree - and then find out that the great low introductory rate didn't apply.
Credit Card Debt Management Trap Feature #2: Hidden Fees
It may be a hassle to go over your credit card statement with a fine-tooth comb, but that’s how you discover Hidden Fees that lead to excessive credit card debt. Be wary of cash advances on credit cards, as many companies charge a transaction fee of at least $10 every time you get a cash advance. Some cards charge a percentage of the amount of the advance, then charge the interest on your repayment - basically double-charging you on the money you received. If you are serious about your credit card debt management, stay clear and use a debit card instead!
Credit Card Debt Management Trap Feature #3: Shortened Grace Periods
Shortening of the grace period - the time between when you charge a purchase and when the credit card company starts charging you interest on that purchase - helps you rack up excessive credit card debt without the pleasure of excessive spending. Traditionally, it’s 25 days - but often, that period gets shortened without notice by the company.
Credit Card Grace Periods
Without a grace period, the card offers no long-term debt consolidation benefits. Some companies don't have a grace period at all any more - which means, even if you pay your balance in full every month, you may still be paying credit card interest! Review your statements - and if you find out this is the case, call the company and ask about it. If they refuse to give you a grace period, consider canceling the account and going with a different company. You should never have to pay interest if you make a habit of paying the entire balance every month.
Credit Card Debt Management Trap Feature #4: Credit When You Shouldn't Get It
You’re already concerned about your rising credit card debt - when an offer comes in the mail for yet another credit card with a great rate and/or a high spending limit. You’re already having trouble with your credit card debt management - and they want to give you another card? Are they nuts? No, but you might be if you dismiss your credit card debt management plans and go for the deal. The credit card company knows your history - and can guess that you’re likely to max out this new card pretty fast, you won’t be able to pay it off quickly, and they’ll make a lot of money on the interest you’ll end up being charged. Find another way to manage your credit card debt and short-circuit their scheme.
Credit Card Debt Management Trap Feature #5: Fees for Rewards Programs
Many credit cards now offer rewards programs in partnership with airlines, chain stores and online merchants - programs which help you rack up more credit card debt. When you sign up their way they automatically charge you a "transaction fee" or membership fee. Instead, call and see if they will allow you to join the rewards program for free. Besides being a good way to manage your credit card debt, the advertising advantages and their partnership with the merchants is probably worth more than the fee that the credit card company is out to get from you - and they’re likely to waive the fee if you ask.
Credit Card Debt Management Trap Feature #6: Variable Credit Lines
This credit card debt management squeeze is seldom mentioned except in the small print buried somewhere in the credit card contract, where it might say something like "Credit line subject to change without notice." This gives the company the power to lower your credit limit whenever it feels like it. How does that hurt you? Well, say you use a big cash advance check at the holidays, or make a big purchase that bumps up your balance near your credit limit. If the company then lowers that credit limit, you’ve now unknowingly maxed out your account - and they get to charge you an overlimit fee. Not nice!
The Best Credit Card for Debt Management
The most important things to consider when shopping for a credit card to fit into your overall debt management strategy:
- Interest Rate - make sure the permanent interest rate is fixed and that it applies to all transactions.
- Annual Fee - you don't want one.
- A Grace Period for all new purchases.
- Cash advances with low or no transaction fees.
- No Fees for Rewards Programs.
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