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How to Use Credit Wisely

Credit card debt can spiral out of control.  Here are some ways to protect yourself from getting in over your head.

  1. Do not use credit cards to finance an unaffordable lifestyle.  If you are constantly using credit cards and are unable to pay the resulting bill each month, then consider whether you are using your cards to make an unreasonable budget work.
  1. Avoid using credit cards if you’re already in financial trouble.  Finance charges and other fees will add to your debt burden.  However, using your credit card in a time of financial difficulty is better than taking out a home equity loan, where your home is put on the line.
  1. Don’t get hooked on minimum payments.  Some credit card issuers have set their minimum payments as low as 2% of the balance.  Others may set it to 4%.  If you pay only the minimum, it will take a long time to pay off your debt.  For example, if you owe $5,000.00 on an account with 18% APR, making 2% payments will take over 44 years to pay off.  Also, you will have paid $12,431.00 in interest.
  1. Don’t run up the balance in reliance on a temporary “teaser” interest rate.  Money borrowed during a temporary or promotional rate is likely to be paid back at a much higher permanent rate.
  1. Make your credit card payments on time.  Avoid late payment charges and penalty rates if you can.  Bad problems get worse fast when you have late fees and higher rates to pay during financial difficulty.  It’s worth calling to ask for a fee to be waived if you were accidentally late, or have a good excuse.
  1. Avoid the special services, programs, and goods that credit card lenders offer to bill to their cards.  Most of these extras – fraud protection plans, credit record protection, travel clubs, life insurance, etc – are often bad deals.
  1. Beware of unsolicited increases to your credit limit.  Don’t assume that this means that your lender thinks you can afford more credit.  Lenders generally increase limits for consumers that they think will carry a bigger balance and pay more interest.
  1. Don’t max out your cards.  It’s easy to get hit with over-limit fees.  Also, a credit card account close to its limit will cause a big drop in your credit score.  Be aware of whether or not your account allows you to spend over your limit, as this is optional.

American Consumer Credit Counseling (ACCC) offers nonprofit credit counseling and debt relief programs for consumers nationwide who find themselves drowning in debt and wondering "How do I get out of debt?" Our certified credit counselors have helped thousands of individuals and families learn how to reduce credit card debt and get out of debt through a variety of credit reduction strategies. Our credit card debt consolidation and debt management plans help achieve credit card relief by consolidating credit cards payments to pay credit card debt down more quickly. We also offer bankruptcy counseling, housing counseling and other financial education services.

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