Each year, many people are helplessly stuck in credit card debts for reasons that could have been avoided.
Let’s talk about some things you need to know about credit cards so you can enjoy the advantages they offer while avoiding the trap of bad debts.
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Don’t owe more than you can afford.
A lot people charge expensive purchases to their credit card thinking that they can pay spread their payments for a couple of months anyway. But such reasoning often leads to bad debt.
Remember, if you choose to pay only the minimum due and carry a balance, you will have to pay the interest rate which can range anywhere from 10% to 20%, depending on the type of card you own.
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Plan your repayment.
Sometimes, using a credit card to finance a need makes sense but you need to know exactly how you will pay for it and how long you will keep a balance. For example, if your credit card offers zero interest rate for 6 months, you can take advantage of this period to make a large purchase as long as you can complete your payments before the regular rate applies.
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Take your obligations seriously.
Owning a credit card involves a serious responsibility. If you cannot abide by the terms and conditions of your issuer, you could be penalized with fees and your credit score may suffer. On the other hand, if you are aware of your privileges as well as your limitations as a credit card holder and you treat your obligations seriously, then you should be able to manage your credit card without problems.
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Understand how credit card usage affects your credit score.
Indeed, the way you handle your credit card or credit cards have a significant effect on your personal credit. Take note that 35% of your FICO score is based on timeliness of payment. Credit limit utilization is another factor used to calculate your credit score. Ideally, cardholders should keep their credit limit usage at 35% or lower to maintain an excellent score.
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Don’t ignore the problem.
If you think you will not be able to submit your payment on time for any reason, call up your credit card issuer immediately and request if your due date can be extended or if the late fees be waived to make it easier for you to catch up with your payments. The worst thing you can do when you can’t pay your bills is to ignore the problem or to hide from your creditors. If you are experiencing a difficult situation or financial crisis, opening up with your creditor and trying to work out a better repayment option can make things easier for you.
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Consider consolidation.
If your credit card debt seems insurmountable, you may consider consolidation by acquiring a secured loan or an unsecured debt consolidation loan. Another possible solution is to apply for a zero interest balance transfer credit card so you can focus on paying only the original amount of debt you owe without incurring monthly interest rate charges.
Check out this infographic about the 2015 American household credit card debt study. Created by Bad Credit Resources, information from Nerd Wallet:
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