You need to avoid credit card debt problems if you really want to improve your financial position this year. The thing is, avoiding it is not just a matter of being smart with credit card use. Sometimes, it begins with the type of card that you use in the first place.
Our society has come a long way when it comes to the use of credit. In the past, it was very hard to borrow money. You cannot just borrow from anyone. And if you do find someone who is willing to lend you money, it comes with a huge price. When the poor borrowed from the rich, they had to work hard to pay it back. Most of the time, it only made their situation a lot worse. This is why in the past, people will only borrow if they were really desperate. If they can avoid it, they will not put themselves in debt.
Now, our society embraces the use of credit like it is our God-given right. There is a certain air of prestige when someone can use their credit cards with abandon. They spend it like it is an extension of their wallets. And since credit helps people make purchases, it is encouraged by the government. After all, consumer spending is one of the things that keep the economy growing. The government and corporations would want consumers to keep spending – even if it means they are using debt to do it.
Of course, that is not really a great way to live. Sooner or later, the debt you use will catch up to you. And once you have credit card debt problems, you will be in a lot of trouble. So you need to stop being reckless about your debts.
The damage that credit card debt problems can bring
Most Americans own a credit card. A huge percent even owns more than one. However, 7 out of 10 admitted that they do not think they can pay off their debts within the year. This was done early in the year. With the way consumer debt increased as 2019 drew to a close, it can be assumed that these credit card owners were right. There is a possibility that a lot of them failed to pay off their debts.
But why are credit card debt problems very dangerous?
The first reason, and maybe the only reason you need, is the high-interest rate. This can quickly make your balance increase. When you use your credit cards and you fail to pay everything off within the grace period, your balance will be carried over to the next billing cycle. This amount will be subjected to a finance charge. This is calculated based on the APR of the card and the current balance. So you can just imagine how quickly your balance will grow if the interest rate is high. If you keep carrying over a balance to the next month, this finance charge will always be added to your balance.
Credit cards were created to make credit access very easy. That means you can easily use credit again and again without the need for further approval. As long as you own the card and you have not reached the limit, you can keep on using it.
This is why it becomes dangerous. It makes credit card debt problems very hard to solve. You need to make sure that you can control your spending urges so you will not lose money anymore. If you have to use credit cards, you need to have a repayment plan to ensure that it will not get worse. Because if it does, it can be a very stressful problem to overcome. So try to avoid the problem in the first place.
How to choose the right credit card to avoid debt problems
Apart from controlling your spending urges, you need to choose the right credit card to begin with. According to a survey, 4 out fo 10 respondents admitted that they feel regret over their retail cards. They said they have paid interest rates on it and they knew it cost them an unnecessary expense.
The truth is, it is okay to own credit cards. But you have to make sure that these are cards that are useful to you. It is the only way that you can maximize it and any rewards that it offers.
Here are tips that you can use to find the right credit card.
Look at your credit score
This will give you an idea if you can negotiate for a credit card that offers the lowest interest rate. And it is not just the interest rate. You will also get a lot of perks. These include rewards, lower annual fees, etc. There are many options for you to look at your credit score for free. The AnnualCreditReport.com offers a free copy of your credit report. You get one free copy from each of the three major credit bureaus (Experian, TransUnion, and Equifax). Then you can use one of the many credit score calculators online.
Determine the purpose of the credit card
Most people get into huge credit card debt problems because they got it without any purpose. Before you apply for a credit card, ask yourself – what good will this card do for me? Can you use it to earn rewards points? Get a rewards credit card that suits your spending behavior. Like if you travel a lot, get a travel rewards card.
Will it help you improve your credit limit? This is usually for college students or new graduates. They can use the card to add more transactions in their credit reports.
Or maybe you can use it to lower your interest rate? Without a purpose, it is easy for you to abuse the use of the credit card. So, identify the purpose of the card. It will also be easier to know the type of card that you can use.
Know the qualities you need in the card
If you know the purpose of the card, you will know what qualities you need to check. For instance, if you need the credit card to help you build your credit score, you need to make sure they will report it to the major credit bureaus. If you plan on getting rewards credit cards, make sure you understand how the rewards are accumulated. You should also know how to claim the rewards. If you will use the credit card to lower your interest rate, then you need to know if there is a chance that the rate will increase. You should also inquire how that change will happen.
Choose the right card
Now that you know your credit score, the purpose of the card and the qualities that it needs to have, it should be easier to choose the right credit card. When you have the right credit card, you will be able to use it properly. After all, it will be used with a purpose. It is easier to develop the right credit card habits. These are the habits that will help you avoid credit card debt problems.
Of course, you still have to scrutinize the details of the card. Read the fine print of the terms and conditions. You need to know everything about the card so you will know what not to do so you can avoid penalty charges.
With the right card and habits, you should be able to avoid credit card debt problems. It will be easier to secure your financial future.