The wrong use of credit cards can easily lead to bad credit. If you’re in the habit of running up high balances on your credit card or credit cards, you are in danger. If you’re content with just submitting the minimum payment, the risk of being ALWAYS in debt is much greater.
But did you know that with proper usage you can use credit cards to improve your credit and reduce your debt load?
To improve your credit, use at least one credit card regularly.
If you own more than one credit card, use one of your credit cards regularly, while giving the others a rest. Focus on paying the other cards down to a zero balance. The card you choose should have a low interest rate and a decent credit limit or you will find yourself using your other cards.
TIP: If you have had the card for a while and have been making on time payment. Call the creditor. Ask them for a higher credit limit and a lower interest rate. Sometimes they may do both, or they may only do one thing. But you will be better off then not asking at all.
Do not close old accounts
Contrary to popular belief, you should not rush into cancelling a credit card to solve bad credit. Terminating an account at this point will only cause your credit rating to drop even more especially if you are closing one of your oldest accounts. If you cancel out now, you will be erasing the oldest parts of your credit history which is a significant factor in your credit score. If you want to cancel because the card has high rate, use it sparing for small purchases that you can easily pay so you won’t have to pay interest and still get to keep your account active.
You can also just pick up the phone and ask them for a lower rate. To many people will send an email to companies now instead of calling. You want to call so that you because most companies will not respond to random emails. They have no idea if its really you emailing them or some scammer. Pick up the phone, go thru the verification process and explain to a real HUMAN what you need.
Pay off as much debt as you can.
Create a spreadsheet with the rest of your credit cards on them. Put in their current balance, monthly minimum and interest rate you are paying. Start with your highest rate credit cards. You want to pay the most each month on these cards.
Tip: Some of my clients were having trouble with making the large payments on time. Or they would pay another card late because they paid so much towards the high interest cards. What we did to protect their credit was to set them up on automatic payment of the minimum amount on ALL their credit cards. That way there was no way they would be late and further damage their credit score. Remember you can always pay more during the month.
Negotiate your way out.
It is always worth the effort to try and negotiate an easier way out from your debts. Call up your credit card company and speak with the supervisor. Explain your financial situation and the reason why it’s difficult for you to keep up with your payments. Sometimes you can get them to remove late fees and reduce your interest rate.
I had one client that had stopped paying on a card that was about to be charged off. We called up the creditor, made ACH payment arrangements and they agreed to waive all the back fees and they gave her a lower interest rate for 12 months to help her pay off the card.
Be creative when you are negotiating and go for broke! Don’t just ask for a lower interest rate, Ask for the lower rate permanently, ask them to remove all the late fees you have paid. Incentive them to work with you by offering to let them take their payment automatically from your bank account. But DO NOT over promise. If you are late or miss a payment all the goodwill will go away. Fees that were waived will be back and the interest rate will probably skyrocket.
Transfer your balances.
Here is another strategy that works if done correctly. Get a balance transfer credit card with zero interest so you can focus on paying off only the original amount of debt you owe without the interest. Nevertheless, you need to be careful in choosing the right card. Make sure that you will have sufficient time to pay off the balances you transferred. See to it that the regular APR will still be reasonable beyond the zero interest-rate period. Most of all, plan your repayment well so you can finish paying off your debts on time.
