How Can You Avoid Debt Your Credit Cards?
Credit card debt is a type of revolving debt. You can continue to borrow month after month as long as you pay enough to never owe more than your credit limit.
Credit card accounts can be used indefinitely, unlike installment loan accounts that are closed after the balance is paid.
However, this type of debt can easily get in your way, wreaking havoc on your finances and your credit score. It is generally recommended that you do not charge more than you can afford at the end of each month, no matter how high your credit limit is.
Interest is charged on debt when you fail to pay your balance, and this will accrue until you do, so you could be even further behind.
How to Manage Credit Card Debt
Credit cards can be a useful financial tool, despite their downsides, and they can improve your credit score when used wisely and if precautions are taken.
Learn all you can about your current credit cards and the ones you want to apply for. Carefully review the card issuer's web pages, comparing credit card terms and conditions and benefit guides. Knowing how and when to pay will help you use credit wisely.
Set spending rules for your cards and stick to them. For example, use your credit card only for purchases or for routine car maintenance, both of which your budget should already cover.
Avoid credit card debt by establishing in advance how much you can charge each month. Be sure to base this amount on what your bank account shows you can afford.
Credit cards are not an excuse to go shopping. They are not "extra" money. Live within your means and only use your cards to pay for things that you can also pay with cash or a debit card.
You will face late fees and interest charges if you don't pay on time. The card issuer can also increase your APR at the penalty rate described in the terms and conditions of your card, depending on the late payment. Set up calendar alerts or automatic payments if you have trouble remembering due dates.
Penalty rates are typically around 30%.
Keep track of your expenses by checking your credit card bills each week. Seeing how quickly fees can rise and eat up a credit limit can inspire you to pay off your balance more quickly.
Avoid accepting cash advances. Using a credit card for a cash advance means paying more interest and transaction fees, and these transactions generally don't have a grace period. Interest is charged from the day you withdraw the advance, not when the billing cycle ends.
Don't open new cards on a whim. Having a wallet full of cards can encourage overspending and make it difficult to know where your money is going. Focus on using cards that work well with your existing spending habits.
Check your credit report periodically. It will show you the debts you owe, your payment history, the number of inquiries on your accounts, and what types of credit you are managing.
Lenders use credit reports to assess your creditworthiness, and you can do the same. You are entitled to a free copy of your credit report from each major credit bureau each year through AnnualCreditReport.com.
Contact a nonprofit credit counseling service that can offer advice if you are feeling overwhelmed. Contact card issuers if you have any questions or concerns. Don't wait until the accounts become default.
We hope you enjoy watching this video about How To Control Credit Card Debt
Source: Betterment Boss
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