There are three things everyone can do to avoid the pitfalls of credit card use:
Have only ONE credit card.
The credit card business is very competitive. Each credit card issuing company wants you to use their credit card over their competitors’. As a result, it’s not uncommon for people to have more than one card and still be receiving offers to take on more.
From a credit card user’s perspective, however, if you have a Visa or MasterCard it can be used virtually anywhere, so there’s really no benefit to having more than one card – other than access to more credit, of course.
More credit’s great until you’re juggling monthly payments with everyday expenses, and any other loan repayments you might have going on, while still allowing for the fact that sometimes things crop up that require money, too. Holidays, birthdays, your furnace dies.
Having more than one card can unfortunately lead you into the trap of paying one credit card balance off with another. This, in turn, can lead to a sense of ‘drowning in plastic’ – just as you come up for air another statement appears …
Don’t allow your credit limit to get TOO high.
Of course, if you treat your credit card like a business and borrow and repay consistently your credit card company will trust you with a higher credit limit, in return. This can be a great way to build up a positive credit rating as long as you are able to maintain the monthly repayments on time and in full with this higher amount, should you tap into it.
But don’t forget the feeling you get when you pay off your credit card bill in full, or know that you’re living within your budget, when your credit card company offers or tries to persuade you to increase your limit. This should be a discussion that you start with them, not the other way around.
We can all always spend more. Know your realistic borrowing limits that offer you the financial freedom and convenience that credit can offer, without the temptation to overspend your way into a financial future full of debt.
Pay your balance in FULL.
It is often tempting to look at your credit card balance and then look at the minimum payment required and persuade yourself that making the minimum payment will keep things ticking over. This is particularly likely during holiday season or if you’re struggling to make ends meet. Can’t give what you don’t have, right?
By paying less than the full balance however, you are borrowing money from the credit card company at a rate significantly higher than traditional borrowing rates. Not paying your balance in full is a red flag - an indicator that you are overspending and putting off dealing with the consequences.
Get a game plan together.
If you have a credit card balance that you can’t pay off in full, then at least pay as much as you can and stop using the card until you have paid it off. If you’re only making the minimum payment and still continuing to use the card, the minimum payment is likely increasing every month and it won’t be long until the minimum payment itself becomes a problem.
A game plan starts with accepting that you deserve a quality future full of affordable opportunities, a financial safety net in case of emergencies, or just enough to live comfortably on without daily worry and the constant feeling of ‘hard times.’
A credit card game plan requires financial boundaries and an ability to live within them.
What’s your strategy?
Gene Frendo is a Licensed Insolvency Trustee with over 20 years of experience helping people in the Hamilton, Burlington, and Niagara regions resolve their debt problems.
To schedule a free, no-obligation consultation please call: 289-273-2841 or email: gene@frendoandpartners.com.