This is the fourth in a series of blog posts about money matters. Today's edition discusses tips for avoiding credit card trouble.
Nearly every adult in the U.S. possesses at least one credit card. A credit card can be a valuable and convenient tool, to assist us in purchasing goods and services, but it is important to manage credit cards and credit card debt wisely. Small purchases can add up very fast and may place you at risk of not being able to pay off your credit card debt in a timely manner.
Your credit history: Credit history is a report of how you have paid your bills or repaid your loans over time. Basically, if you pay your bills in full and on time every month, then your credit history will be positive. If you have late or missed payments, then you will most likely trigger late payment penalties and default rates, which will also harm your credit history and lower your credit score.
Credit card fees: It is important to understand all of the fees and finance charges associated with any credit card. Annual fees are set by the card issuer and interest rates may vary in accordance with the prime lending rate. To obtain lower fees and interest rates, shop around for lenders who don’t require an annual fee or offer lower annual fees and interest rates. Rates and fees may be particularly competitive when transferring balances, but it is important to manage this option wisely and not continue to run up the debt on the remaining cards.
Make timely payments:One of the most important things you can do to avoid these penalties is to keep careful track of all payment due dates and be sure to send in (at least) the minimum required payment on time each month. Consider setting up automatic monthly minimum payments from your checking account. However, making only the minimum payments means it will take you longer to pay off your balance and you will continue to accrue interest charges. To avoid higher finance charges, and to benefit yourself, you should aim to pay off as much as possible of your balance each month.
Late payment penalties and default rates:In addition to the interest charges incurred when you carry a balance on your credit card, the costs of credit include late fees and default rates. If you do not carefully manage your account and pay it on time, many credit cards charge large late fees (from $20 to $39) if they do not receive your payment by the due date. Also, if you make late payments, you may be subject to an increase on the interest rate applicable to that account.
Set a goal to pay off your credit card debt:Take a careful look at your budget so that you can allocate sufficient funds to pay down and pay off your credit card debt in a timely manner.
If you cannot make your payments:If you find that you cannot meet your minimum monthly payments, you should immediately contact your creditors. Determine a monthly payment that you can and will make. Many creditors will try to work out a suitable payment schedule if they believe you are acting in good faith.
If you are still having serious problems after attempting these steps, another option to consider is to work with a credit counseling service to create a debt repayment plan. Be advised that fees vary widely and it is very important to shop around and avoid credit counselors who charge large up-front fees or large monthly fees. For more tips, please refer to the “
Before You Contact a Debt Elimination and Consolidation Service” page on our website.
Two other methods of dealing with debt problems are consolidating debt through a single loan, and filing for bankruptcy. There are serious implications associated with both of these options, so consult with a trusted banker or counselor about debt consolidation, or a competent bankruptcy attorney about bankruptcy, before taking any action.
Learn more:For more information on managing credit cards, including a review of changes implemented recently under the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, please refer to the
AGO’s Guide to Consumer Credit.