As the necessities of life are getting dearer, an increasingly large number of people in America are resorting to credit cards for their daily needs. Due to the impact of poor employment and low salary, a large number of people are not having enough cash with which they can make ends meet. Thus, they are using their credit cards to meet daily necessities.
Most people are paying their rent, utility bills, and food costs with the help of their credit cards. Though they’re getting an immediate relief, they’re gradually being caught in the vicious trap of consumer credit card debt. Even worse, if they are even late with their payments by a day, they’re subject to an outrageously high-interest rate.
Credit cards are now becoming popular for some important features. People can avoid cyber scam by using credit cards instead of debit cards. In addition to this, people are now more comfortable in doing online transactions instead of carrying cash.
Also, some attractive offers and rewards are attracting people to keep various credit cards.
People are now getting a travel card, store card, gas card, and many more. They want to get discounts and earn miles, or points by using their cards.
It seems credit cards are the perfect tools for modern people’s life in an advanced country like America.
But what is not right is the rising credit card debt that our Nation owes.
Yes, according to the Federal Reserve, America owes $1.058 trillion in total consumer credit card debt in 128 million U.S. households.
Unfortunately, the average U.S. household has $8,292 credit card debt. And, an individual who is carrying a credit card has $5,839 debt.
In short, people are not managing their credit cards properly. They forget about the basic rule of managing a credit card.
If you analyze the reason behind this high credit card debt in our nation, you will understand that credit cards are becoming powerful tools for people. They are using the power to get everything that they want. They are constantly applying for new credit cards but they don’t know how to manage them.
Credit cards: The truth of using these powerful tools
People who are under 21 years can apply for credit cards now. Though, they have to show independent income or assets to get the approval. The credit card company allows a credit limit while giving the card to the person, which means the maximum outstanding balance you can have on credit card at a given point of time without getting a penalty. This means, credit card company only wants to get assured that the person who is asking for a credit card can pay the credit card bills.
But, while using this tool, people are becoming more spendthrift as they consider it as free money. Using a credit card, you are not supposed to pay the bill while buying an item. Just swipe the card and get the item.
People simply forget the fact that they are supposed to pay the bills in full and within time. Even making the minimum payment is not sufficient.
With the present debt situation in the US and the number of debt delinquents, it’s no wonder that the credit card issuers are all skittish about the rising number of risky borrowers.
As the employment rate declines to add fuel to the fire, the credit card issuers are all trying their best to limit their risk exposure.
10 Rules of managing credit cards properly to avoid debt
It is clear that U.S. consumers are in huge credit card debt as they fail to follow the credit card rules.
But, knowing the rules can help you to stay away from the debt. You can also build a good credit score by managing your credit cards properly.
Here you go:
1. Pay your balance every month
Remember, getting a card is not enough, you should pay the bills in full and within time. Carrying balance to the next month only increases interest.
Pay the bills in full so that you don’t accumulate interest rates and reach a huge amount in the future.
2. Avoid paying just the minimum payment
Making only the minimum payment on your credit card is not enough. The longer you’ll make just the minimum payments, the more money you’ll accumulate in the form of interest rates.
3. Try to understand the terms of the credit
You need to read the terms and conditions of a credit card while taking out a credit card. Know the interest rates, the payment schedule, and the fees on the card. It helps to avoid being subject to sudden late fees and penalties that can unnecessarily increase your monthly payments.
4. Don’t use credit cards beyond your affordability
Remember your credit cards just make your life easier but if you use them randomly, you can fall into financial trouble. Because the amount that you charge on your credit card needs to be paid back in full. If you don’t do that, you will be in debt soon. Thus, you shouldn’t buy items using a credit card that you can’t afford in cash.
5. Remember your due dates
Keep track of the due dates so that you don’t miss a single payment. Most credit card companies charge fees for even a late payment. Set reminders to avoid being subject to any kind of additional payments that can increase the scheduled monthly payments that you’re already supposed to make.
6. Avoid falling into the bonus and reward traps
Using multiple cards is nothing but luxury and foolishness. Having too many cards just create more opportunities to get on a spending spree. Avoid applying for more cards just to get the rewards and miles. Remember, these are marketing tactics by the credit card companies. They want you to use a credit card for every purchase. But you shouldn’t do this. Using credit card just to get points is foolishness. Remember, nothing comes free; you are actually making forced purchases.
7. Create a spending plan
Everyone needs to create a monetary plan and follow it to let go of their high-interest debts. Without a plan, no one can work towards the goal. You should also have a budget that can assist you in tracking your income, expenses, and monitor your savings. Also, you need to create a spending plan before going out with cards. It will help you to avoid frivolous spending.
8. Put your credit cards on hold
Restrict the usage of the credit cards so that you can stop yourself from accumulating further debt.
9. Pay off high-interest debt first
Debt avalanche method is a wise way of dealing with credit card debts. Target the account with the highest interest rate and direct all your financial resources towards clearing off that debt amount while making the minimum monthly payments on other cards. After you clear off that debt, target the one with the second-highest rate and follow the same method.
10. Avoid carrying cards
If you are addicted to get on a shopping spree, then carry cash instead of credit so that you can at least stop shopping when you exhaust cash. The more you use credit, the more you’ll incur debt and you’ll be bound to repay the money.
Lastly, as America is gradually turning into a cashless country, people should be more knowledgeable about their credit cards. You should also be aware of the federal rules that are continuously being cracked on the credit card companies. Always stay within your affordability so that you don’t need to overstretch your budget and fall into debt.