credit card debt
Don’t let high interest rate debt take over your budget.
Learn how to manage credit card debt effectively.
Credit cards are an extremely useful financial tool. But the high interest rate credit card debt can that they generate can be problematic for your budget. The more you charge the more you have to pay. The articles below help you understand current trends and economic factors that affect your ability to manage your debt effectively.
Lauren Went on a “Spending Freeze” to Pay Off $8,000
August 16, 2017 | Brian Bienkowski
The debt she accrued wasn’t her fault this time, but it was her responsibility.
Money on the Street Interviews: Are Credit Cards Bad or Good?
August 9, 2017 | Michelle Bryan
When it comes to credit cards, even good answers have bad elements lying just beneath the surface.
Americans Are Buried in Debt, But What About the Rest of the World?
July 31, 2017 | Howard Dvorkin, CPA
Sadly, we’re No. 1 in one of the categories we don’t want to be.
Will I Make More Money Buying A House Or Paying Off My Credit Cards?
July 5, 2017 | Howard Dvorkin, CPA
A reader and her husband want a new house, but they don’t want old debt, either.
CFPB Wants Credit Card Offers to be More Transparent
June 28, 2017 | Dori Zinn
The Consumer Financial Protection Bureau is asking retail credit card companies to end deferred interest card offers since many consumers don’t actually know what that means.
Will Bankruptcy Keep Me From Buying A Car?
June 28, 2017 | Howard Dvorkin, CPA
A reader went bankrupt, and now years later, she needs a new set of wheels.
Zero Percent vs. Deferred Interest: Do You Know the Difference?
June 26, 2017 | Dori Zinn
The Consumer Financial Protection Bureau wants you to avoid falling into the trap of promotional credit card offers.
Middle Class Millennials Struggle With Employment
June 13, 2017 | Joe Pye
Having a credit score under 700 is related to difficulties holding onto jobs and living on your own.
Don’t Take Advantage of Credit Card Cash Advances
June 8, 2017 | Dori Zinn
Consumers are paying much more in cash advances than what they take out. Here’s a breakdown of the costs.
How Do We Prepare For The Next Recession?
May 31, 2017 | Howard Dvorkin, CPA
A reader agrees with her husband: A recession is coming. They don’t agree on what to do about it.
High Debt Gives Us High Anxiety
May 19, 2017 | Joe Pye
Most Americans don’t have a plan to deal with an average debt of $37,000.
Good And Bad News About Recession 2018
May 15, 2017 | Howard Dvorkin, CPA
The economic recovery is literally one step forward, one step back.
Can The United States Help Me Get Out Of Debt When I’m Abroad?
May 10, 2017 | Howard Dvorkin, CPA
A reader has as much debt as income. He’s out of the country. Can he still get out of debt?
Ask The Expert: How Do I Hide Debt From My Girlfriend Till We Get Married?
May 3, 2017 | Howard Dvorkin, CPA
A reader is looking for a “hack” to avoid telling his girlfriend the truth.
3 Steps to Become Debt-Free and Chase Your Dreams
April 28, 2017 | Robert Beiler
A little sacrifice can go just as far as hustle
How Do We Save For Retirement And Pay All Our Bills?
April 19, 2017 | Howard Dvorkin, CPA
A reader wants to know how to survive “the sandwich” — without evicting his mother-in-law.
Ask the Expert: Are Debt Management Plans Legit?
April 12, 2017 | Howard Dvorkin, CPA
A reader wonders if the letters DMP are A-OK.
It’s Financial Literacy Month. Give Yourself Some Credit! [VIDEO]
April 4, 2017 | Howard Dvorkin, CPA
This month, Debt.com answers all your questions – in under a minute.
Interest Rates Are Going Up. Should You Be Worried?
March 30, 2017 | Brandon Ballenger
It depends on whether you have debt, and what kind. If you’re rich, it’s strictly good news.
Ask the Expert: Jump On The Trump Train?
March 29, 2017 | Howard Dvorkin, CPA
This week: A reader wants to dive into the stock market and clean up. But is he making a mess?
3 Little But Fascinating Financial Facts
March 27, 2017 | Howard Dvorkin, CPA
Here are some recent news nuggets that, taken together, may make a larger point.
3 New Polls that Depress Me about Americans and Money
March 20, 2017 | Howard Dvorkin, CPA
How can the greatest country on Earth not be so great with its money?
Ask The Expert: What’s The Least Bad Answer?
March 8, 2017 | Howard Dvorkin, CPA
A husband and wife have competing plans for getting out of debt. Alas, both are terrible.
Millennials Give Scary Answers to Silly Questions About Debt
February 20, 2017 | Howard Dvorkin, CPA
The generation that will soon take over the world has yet to conquer its own financial woes.
For Love of Money
February 14, 2017 | Joe Pye
Americans prefer financial stability over looks and fitness in romantic partners.
Credit Card Debt: When “Typical” Is Horrible
February 13, 2017 | Howard Dvorkin, CPA
Here’s a new statistic that should strike fear into your family. Here’s what you can do about it.
Ask The Expert: Is This The Dumbest Idea You’ve Ever Heard?
February 1, 2017 | Howard Dvorkin, CPA
This week: How Trump, gold bullion, and credit cards don’t mix.
Ask The Expert: Declare Bankruptcy Before Or After My Wedding? [video]
January 18, 2017 | Howard Dvorkin, CPA
This week: A couple wants a clean slate, but are they mucking up their nuptials?
Ask The Expert: How Do I Tell My Fiancee? [video]
January 11, 2017 | Howard Dvorkin, CPA
This week: A man has a dirty little secret he’s keeping from the love of his life.
We’re Getting Squeezed By Credit Card Debt — But Acting Smarter
December 15, 2016 | Brandon Ballenger
Our expenses keep going up, but our credit card debt is lower than it was a decade ago
Ask The Expert: Are Credit Cards Rigged?
November 30, 2016 | Howard Dvorkin, CPA
A reader is suspicious of all these “reward programs.” How can they possibly be legit?
Ask The Expert: Should I Sign A Pre-Nup? Or Make Him Sign One, Too?
November 23, 2016 | Howard Dvorkin, CPA
A reader is offended by her fiance, but she’s got an amusing plan to even the odds.
Millions of Americans Spy on Credit Card Statements of Others
November 17, 2016 | Dori Zinn
Turns out that 24 percent of higher-earning and lower-earning Americans are equally likely to snoop on the credit report of someone they share an account with.
10 Ways To Stay Motivated When Paying Off Debt
November 17, 2016 | Debt.com
Do you know when to be patient — and when to be angry?
Dvorkin On Debt: What You Can Learn From Ryan Lochte’s First Credit Card
November 14, 2016 | Howard Dvorkin, CPA
The swimmer, dancer, and Debt.com spokesman just got a credit card. Here’s why that matters.
The Subtle Psychology of Credit Cards
October 20, 2016 | Dollar Stretcher
Here’s how to understand the emotions of your purchases.
Americans Have a Ton of Debt
October 10, 2016 | Dori Zinn
Most people say they don’t have any debt, but do they know what debt means?
Never Read Your Credit Card Contract? It Might Cost You
October 4, 2016 | Money Talks News
Only 26 percent of cardholders regularly read them. Find out why that’s a mistake.
Dvorkin On Debt: Credit Cards Are Still Crazy About Fees
September 5, 2016 | Howard Dvorkin, CPA
You’ll never guess how many fees your credit card can charge. Seriously, you’ll never guess.
Don’t Put College On Your Credit Card
August 24, 2016 | Dori Zinn
Most public schools charge convenience fees that can put you out hundreds of extra dollars a year
Almost Every State Is Stressed About Debt
August 22, 2016 | Dori Zinn
Most every state in the union is stressed about paying off debt. Here’s the complete breakdown, state-by-state.
Are Trump and Clinton Supporters Actually That Different?
August 16, 2016 | Dori Zinn
Most supporters of Democrat nominee Hillary Clinton and Republican nominee Donald Trump have credit card debt.
Employers Now Use Financial Background in the Hiring Process
July 25, 2016 | Treanna Lawrence
The impact credit scores now have on those seeking out employment
Dvorkin On Debt: Pokemon Go Should Be Pokemon Dough
July 18, 2016 | Howard Dvorkin, CPA
The latest craze in mobile gaming can teach as much as it entertains.
Dvorkin On Debt: The Real Definition of “Unhealthy Debt”
July 4, 2016 | Howard Dvorkin, CPA
Debt can not only ruin your life, it can kill you.
FOMO Plays a Huge Role in Millennial Spending
June 21, 2016 | Treanna Lawrence
How the fear of missing out effects this generation
Military Personnel Are Overwhelmed With Their Finances
June 10, 2016 | Treanna Lawrence
Those who dedicated their lives to serving are now left vulnerable to debt
Ask The Expert: Are Debit Cards Better Than Cash And Credit Cards?
June 1, 2016 | Howard Dvorkin, CPA
A reader’s fiance insists cash isn’t king, and credit cards are evil.
Dvorkin On Debt: Charlie Sheen Has More Credit Card Debt Than You
May 23, 2016 | Howard Dvorkin, CPA
The (in)famous actor owes nearly $300,000 on his American Express card. I’m offering to help him.
Dvorkin On Debt: 3 Shocking Stats
April 18, 2016 | Howard Dvorkin, CPA
The recession is over, but are we spending our way into another one?
10 Credit Card Debt Facts You Can’t Afford to Miss
#1 Most credit cards have variable interest rates.
This means that when the Federal Reserve decides to raise interest rates, you can expect your rates to increase, too. There are rare fixed-rate credit cards, but they’re hard to come by and only available with excellent credit.
In 2017, the Fed already raised interest rates twice by 0.25% each time. Most credit card companies calculate APR as the prime rate plus a certain percentage. So, while the prime rate increased by 0.5% this year, your APR may increase more.
#2: Minimum payments don’t help you get out of debt.
Credit card companies didn’t design the minimum payment system to be an effective way to get out of debt. In fact, interest charges are how issuers make profit, so they’d probably prefer it if you stay in debt forever. A standard minimum payment calculation takes a percentage of your current balance, such as 2.5%.
At such a low percentage, monthly interest charges eat up roughly 2/3 of every payment you make. Even with a low APR credit card with interest charges around 15%, it eats up half your monthly payment. As a result, you can pay month after month and not make an effective dent in your debt. You have to pay more than the minimum payment to eliminate credit card debt efficiently.
#3: If you pay your balances in full, you avoid interest charges entirely
Creditors split card users into 3 different groups:
- “dormant” users don’t have active accounts
- “transactors” are people who pay off their balances in-full every month
- “revolvers” carry balances over from month to month
Issuers prefer people who are revolvers because they generate more revenue through interest charges. Transactors avoid interest charges entirely because they pay their balances in-full every month. If a cardholder starts a billing cycle with no balance and then pays off all charges within that billing cycle, no interest charges accrue.
A transactor’s pay-in-full strategy means they reap all the benefits credit cards without the extra cost of interest charges. It’s the best way to use credit as a consumer; even if it doesn’t make the credit card companies happy, it makes your wallet happy.
#4: Annual fees only make sense for highly active credit users
These days, many credit cards are fee-free. However, some new rewards credit cards have annual fees up to $450 or more per year. These credit cards usually offer the biggest rewards and best perks. However, it only makes sense to get a high fee card if the rewards are higher than the fee itself.
Basically, this means high fee credit really only provides a benefit to highly active transactor cardholders. Transactors earn all those great rewards and pay no interest because they always pay the bill in full. In this case, paying a high annual fee is reasonable to get so much back.
#5: Interest charges offset rewards quickly
Earning 5% cash back is great, but even a relatively low APR of 15% offsets that cash back quickly. Let’s say you charge $1,000 and earn 5% cash back; that’s $50 you earn earned. At 15% APR, interest charges equal $12.50 of your $25 payment. If you don’t pay the debt off within the first 4 billing cycles, that $50 gets offset entirely by interest charges.
If you make a purchase that will take a few billing cycles to pay off, use a low APR card. You may want to earn the rewards, but it’s not worth it if you can’t eliminate the debt quickly.
#6: Avoid penalty APR at all costs
If you miss a payment by more than 60 days – i.e. you don’t pay for 2 billing cycles – you incur penalty APR. This rate can be double or more what you pay normally. In fact, penalty APR can be so high that you get trapped in something called “negative amortization.”
Negative amortization happens when accrued monthly interest charges are higher than the minimum required payment. So, you make a payment on time, but your balance goes up instead of down.
You can restore the standard rate for purchases on a card by paying on time for 6 consecutive months.
#7: Don’t use cash advances
Credit cards have a feature that allows you to withdraw money at an ATM. However, unlike your debit card that draws from an account, the funds come from your open credit line. This means you incur interest charges. Cash advance APR tends to be higher than standard APR for purchases. It’s usually over 20% APR and often over 25%.
What’s more, there is no billing cycle delay on interest charges. As soon as you make the cash advance, the creditor applies the cash advance APR. So, it always costs something to use this convenience. If possible, just use the credit card to make the purchase instead of withdrawing cash to cover it.
#8: Know when introductory promotion periods on your cards end
Often when you open a new account the creditor extends special interest rates on purchases and balance transfers. They may offer 0% APR on purchases and transfers for a few months – usually between 6 and 18 months. This is beneficial because it allows you to charge and pay off debt interest-free.
Just be aware that if you have a balance when that promotional period ends, you incur interest charges on the full balance. Ideally, you want to have zero balances when the promotion window closes.
This is especially true if you use a balance transfer credit card to consolidate debt. If you transfer balances from existing cards to a new card with 0% APR on balance transfers, you have time to pay off the debt without worrying about interest charges. But once the standard APR on balance transfers kicks in, you’re back to high interest charges.
#9: Some issuers don’t let you transfer their own balances
If you’re considering balance transfer as a way to consolidate debt, check with your creditors first. Some credit card companies will happily accept transfers from accounts with other companies; however, they won’t transfer a balance from one of their own cards.
Chase® is one of the credit card companies that have this policy. If you have a Sapphire card, you won’t be able to transfer the balance to a Chase balance transfer card. Chase is not the only company that does this. Check with your creditors or review the balance transfer policy before you open one of these accounts.
#10: Credit cards are not good to use for big projects
If you have a major expense, such as a home renovation project, don’t use credit cards to fund it. High interest rates mean higher total cost for your project. A $10,000 project funded with credit at 15% APR results in $9,636.88 in total interest charges on minimum payments. Even if you make $250 fixed payments every month it equals out to $3,949.66 in total interest charges. Your $10,000 project costs almost $14,000 total.
Often a better solution is to take out a personal loan. Loans have lower interest rates than credit cards – usually less than 10%. You still increase your total cost with interest charges, but for much less. For example, let’s say you take out a personal loan for $10,000. With excellent credit, you can qualify for a 6% interest rate in today’s market. The monthly payments would be comparable at $234.55 per month. But the lower rate reduces total interest charges to $1,272.81. Always consider all financing options before you pull out the plastic on a big project.