June 1, 2018

The Best Ways to Avoid Credit Card Problems

Simple. Thrifty. Living.

If you’re like most Americans, you have over $6,000 in credit card debt. Repaying that debt takes a lot of discipline and money. Luckily, you can follow these four ways to avoid creating credit card problems for yourself.

Credit card companies make money by charging interest. When you repay your balance every month, though, you never have to make interest payments.

If you have a month when you cannot repay the balances on multiple credit cards, focus on the account with the highest interest rate. Don’t let it become a habit, though, or your debt will grow.

Many people rely on their credit cards to pay for emergency expenses like car repairs and hospital stays. Charging a lot of money to your card at once will make it much harder for you to repay the balance quickly.

Instead of relying on your credit card, create an emergency fund for unexpected expenses. Ideally, your emergency fund should contain enough money to pay your bills for at least three months.

If you don’t already have an emergency account, though, don’t let that high amount dissuade you. Start saving as much money as you can each month. Even if it’s just $50 per month, you’re better off than someone who has to use a high-interest credit card to pay for emergencies.

Minimum payments will not get you out of debt. They will only prevent the credit card company from charging you additional fees.

Let’s say you owe $6,000 on a credit card account that charges 20 percent interest. If your minimum payment equals 2 percent of your debt, then it will take you more than 50 years to repay the full debt. If you need even more motivation to pay more than the minimum, consider that you’ll spend nearly $26,000 in interest over those 50 years.

Credit card companies have all kinds of ways to make extra money from you. Late payments, for instance, give them the opportunity to charge you a late payment penalty. The company may also use the late payment as an excuse to raise your interest rate.

Even if it means paying the minimum, you must pay your credit card bill on time. Otherwise, you’ll lose a lot of money in the form of fees and interest.

Credit cards are useful ways to buy things online and in real life. Plus, you need them to build a credit history that helps you qualify for low-interest loans. Unfortunately, a lot of people misuse their credit cards. Follow these tips so you can avoid credit card problems.

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