How to Control Credit Card Debt?
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 don't pay your balance, and it accumulates until you do so, so you can be left behind even further.
What is credit card debt?
Credit cards were introduced in the 1950s and the stock of the national debt steadily increased as they gained popularity.
Consumers applied for credit cards to cover expenses, and card debt soared after the Bankruptcy Protection Act made it more difficult for people to file for bankruptcy in 2005.
The stock of U.S. revolving debt for consumers, which is primarily made up of credit card debt, topped $ 1 trillion for the first time in December 2007.
Then the prevalence of credit cards declined and balances fell with the Great Recession. Laws such as the CARD Act of 2009 were passed and the national revolving debt balance was reduced to $ 835.9 billion in April 2011.
How to Control 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. Review the card issuer's web pages carefully and compare the 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.
Your card issuer may also increase your APR at the penalty rate described in your card terms and conditions, depending on your late payment. Set up calendar alerts or automatic payments if you have trouble remembering due dates.
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 can make it difficult to keep track of 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 the types of credit you are managing.
Connect with a nonprofit credit counseling service that can offer advice if you feel overwhelmed. Contact card issuers if you have any questions or concerns. Don't wait until the accounts become default.
- You can apply for a loan repeatedly with a credit card, up to the amount of your available credit.
- Available credit is the difference between your card's credit limit and the amount you've already charged, plus interest and fees. Credit card debt is not secured by collateral.
- The lender cannot seize the property you have purchased if you do not pay your card balance, but your credit score could be seriously damaged.
- You don't have to pay the full balance on the card each month, but you will accrue interest on the interest if you don't, because the interest increases your balances. Your debt will increase.
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