If you gained the weight of high credit card debt in 2022, take these steps to trim down those balances for better financial health.
Use your credit cards without creating debt problems.
Smart ways to use your cards while avoiding common debt and credit traps.Credit cards don’t have to be the enemy of a stable financial outlook. With the right strategy, you can open accounts and use them to your advantage. As long as you understand how to manage high interest rate debt effectively, credit can be a helpful tool in your financial arsenal. These articles teach you about the latest tips and tricks for using your accounts strategically. They also explain trends that affect how you manage credit so you can maintain a high score and avoid debt. Learn how to avoid common traps and overcome challenges that often lead other consumers into financial distress.
You can save hundreds by charging holiday spending to a 0 percent APR credit card — but only if you play by the lender’s rules.
Tire of shelling out big bucks for credit card interest each month? Try these four ways to save on credit card interest.
A new Debt.com survey shows Americans worry that their plastic is hurting their mental health. The reasons sound eerily familiar.
Pick up the phone when you need to ask your credit card issuer for these four favors.
You can still get a later payment date, but a lower APR will be a little more difficult
Here’s how to ensure you can make monthly payments on high-balance credit cards.
To err is human. But you can avoid catastrophe by heeding others’ advice.
You can save big on a large purchase with a 0% interest offer – unless you pay more in the long run.
Regular rewards cards often pay out more per gallon.
Everything from marijuana to parking meters.
Tired of chipping away at debt a few dollars at a time? Here’s how to knock out debt in record time.
Credit card companies have their own interests before yours. Read between the lines before accepting an offer.
Financial missteps in your 20s can make going bald or wearing mom jeans the least of your worries later.
Get the most from your credit card by steering clear of these common credit card missteps.
If you can’t get approved for a credit card, don’t give up. You may have other options.
Tired of holiday debt hangovers? Money Girl interviews Kristy Olinger, Credit Card Product Manager at Citizens, and co-host of The Opposite of Small Talk podcast, for tips on stretching your budget, using often-overlooked card benefits, and safe shopping this holiday season.
When you need money fast, don’t fall prey to easy options that can worsen financial troubles.
Here’s what you need to know before opening a retail credit card to get a discount.
Applying for a new credit card before the holidays could be a smart move – or a costly mistake.
Listener Kaitlyn asks: How will canceling a credit card affect my credit scores? Money Girl Laura Adams explains what you need to consider before closing an account, how to minimize hits to your credit, and tips for canceling cards strategically.
Credit cards don’t have to lead to financial woes when you’re smart about how you use them.
If you have any of these debt-amassing traits, hold off on applying for that shiny new card.
Are you missing out on a big-bucks bonus? Here’s how to score some free extra cash.
It pays to know what you’re signing up for before saying yes to a store’s credit card.
Thinking about making a large purchase? You may benefit from using your credit card.
Clever ways to take full advantage of different types of rewards credit cards, including avoiding foreign transaction fees and receiving cash back on gas, hotels, and airfare.
Don’t get on board with just any credit card offering travel rewards. Here’s how to select the best card for your needs.
It all depends on how you use credit and what makes sense for your financial life.
A new high-end credit card picked the right time to make a name for itself – and force all other cards to innovate.
A veteran credit-card expert shares the best cards for massively lowering your interest rates.
Your needs are different, so your credit should be different, too.
You can’t leave the house now, but you can save for later.
The current national economic crisis weighs heavily on those with credit card debt.
New account changes will stop cardholders from suing. But there’s still time for you to protect yourself.
The stores are trying to make money off you – but you may be able to flip the script.
They keep them for big-ticket items, and pay cash for cheap things.
Compared to their elders, millennials have a lot to learn about credit.
People sign up for them without knowing what they are and pay for it later.
The average credit card has at least four fees, and they add up faster.
He also paid it all off — but it cost him some memories.
This spooky map looks at how long it takes to pay off the typical credit card debt in every state.
She stopped making excuses and started her own financial and personal revival.
This month, Debt.com answers all your questions – in under a minute.
I have very mixed feelings about this. So should you.
Most Americans opt to use credit cards for their holiday shopping, but make common mistakes with them.
Not all rewards cards are created equal. Check out which is good for you.
8 Traps to Avoid That Lead to Debt and Credit Problems
#1: Interest charges offset any rewards you earn quickly
If you don’t pay off your debt in-full at the end of each billing cycle, you offset any rewards you earn with interest charges. That’s true whether you earn 1.5% cash back on everything, 5% on specific things, airline miles or points. Since credit cards have such high interest rates, it doesn’t take long for 22% APR to eat up that 5% you earned on groceries.
Let’s say you have a credit card that offers 1.5% cash back on everything. You make a big $1,000 purchase for a new TV on that card. Great, you just earned $15 cash back. However, the card also has 19% APR.
- On a standard 2% payment schedule, the minimum payments would be $20.
- If you only make minimum payments, you pay $1,697.81 in interest charges over 169 payments
- In fact, in the first $20 payment, $15.83 goes to cover accrued interest charges. You effectively pay more interest charges than the rewards you earn
The only way to avoid the offset is to use an account that started the billing cycle with a zero balance. If you pay off the $1,000 within that first billing cycle, you don’t incur any interest charges. But the instant you let the balance carry over to the next billing cycle, you just wasted that cash back you earned.
#2: It’s time to pay up when introductory periods ends
Introductory or promotional periods on new accounts are extremely beneficial. You can pay off your debt interest free for a period of time. This can be useful for big-ticket purchases like that TV from the example above. It can also help you to pay off debt quickly if you consolidate with a balance transfer credit card.
However, you need to be very aware of when your introductory periods end. At that point, interest charges will apply to whatever balance you have on the card. If you consolidated to pay off your debt fast, you want to finish before this period ends. Otherwise, you’re essentially right back in the situation you were before you transferred the balances.
Also be sure to check if the interest is simply set to zero during the introductory period or deferred. If interest is deferred then you absolutely can’t afford to let the balance carry over at the end of the promotion. With deferred interest, you must pay interest charges on the full balance even if you just have a small percentage of debt remaining.
#3: Purchase acceleration pushes you to spend more
Purchase acceleration is where you spend more on a credit card specifically for the purpose of earning rewards. It often drives people to go over budget and buy things they really don’t need. You make extra purchases at the airport to earn more miles. You charge incidentals to a credit card because you’re close to a certain point total. This is not a wise way to use credit, so recognize that it happens and avoid it.
#4: More than 30 days means credit damage
If you miss a payment by more than 30 days, federal law requires the issuer to report it. They notify the credit bureaus and you get popped with a negative item on your credit report. This negative item remains on your report for seven years from the date the issuer reported it.
You get a new penalty at 60 days, 90 days and 120 days. Then the creditor writes off the account and moves it to charge-off status. This is typically when you encounter collectors.
If you miss a payment by a few days, you usually don’t have to worry about credit damage. It’s usually only when you’re late by 30 days or more.
#5: Minimum payments aren’t meant to be efficient
Creditors don’t set minimum payment schedules to help you pay off debt effectively. In fact, it’s the exact opposite. Interest charges are how creditors earn revenue from you. So, it’s in their best interest to keep you in debt as long as possible. More months in debt means more opportunities for interest charges. That’s why they let you pay $20 on a $1,000 for 169 months. They end up making more money than what you initially charged.
Always try to set up your own repayment schedule to pay off outstanding balances faster.
#6: Penalty APR can lead to negative amortization
Check the terms on your credit card agreement carefully to see how and when penalty APR may apply. Penalty APR is a higher rate that a creditor charges once you make a late payment. In some cases, it can be double your regulate rate. This quickly piles on interest charges on the debt you owe.
In normal circumstances, APR eats up about one half to two thirds your monthly payment. If you have 15% APR, it’s about half; at 20% APR it’s two thirds. So, if you double that rate you can get into a bad situation with negative amortization. This is where the minimum payment doesn’t cover the accrued interest charges on the account. As a result, you can make a payment and end up with a higher balance than when you started.
By law, a creditor must remove penalty APR if you make 6 consecutive payments on time. Then the creditor restores the original rate on the account.
#7: Creditors won’t give you better rates unless you ask
Speaking of rates, it’s a good idea to check what’s happening with average credit card APR frequently. You want to know where average rates sit so you can negotiate effectively with your creditors. Negotiation is key, because your creditors will never volunteer to give you a better rate.
They increase your rates when the Fed raises their rate. They’ll give you a better credit limit so you can spend more money. But they won’t just offer you a lower rate, even if you have perfect credit. You have to call to ask.
#8: As long as you pay the principal, it doesn’t cause credit damage
One final trap to note is the idea that you have to pay what you owe using traditional means. It’s the idea that if you have $7,500 of debt to pay back at 23% APR that you’re stuck slogging through that with traditional payments.
It’s not true! As long as you pay back the principal– i.e. the original debt you incurred – it doesn’t cause credit damage. You can negotiate for lower APR, restructure your debt payments or consolidate. If the solution you use pays back the amount you borrowed, your credit shouldn’t be hurt. This is why a debt management program can help you build credit by paying off your debt. However, a debt settlement program hurts your credit because you only pay back a portion of what you owe.