Credit Cards: 5 Ways They Are Costing You
If you’re alive and well in the United States then chances are high that you have at least one credit card. Holding a form of credit is more common than owning a pair of bowling shoes in America. In the same token more people also deal with credit card debt as well.
Being marketed as an alternative to spending your own money, credit cards can give people a false sense of security. Before you know it you could have thousands of dollars in credit card debt and not have the slightest idea how to eliminate it. Credit card debt is sneaky and if you’re not prepared to handle it, you can find yourself suffering grave consequences. Here are a few ways credit cards can cost you more.
5 Ways Credit Cards Cost You More Than You Think
The most common way a credit card can relieve you of your hard earned money is through interest rates. When you carry a balance on a credit card you get charged with interest on the debt you owe. Some credit cards have higher interest rates than others depending on your credit score at the time you apply for it. If you don’t control the debt accumulated on a credit card then interest rates can pile up.
Credit card debt is especially troublesome because many people end up trying to pay off their interest rates more than their principle amount. If your principle amount doesn’t shrink, then your interest rate continues to add fees onto your overall debt. You could end up in an endless cycle of debt if you only pay off interest fees.
The best method to lower your debt is through careful budgeting and financial planning. Making monthly payments on your credit card can drastically reduce the effects of interest rates. Keeping your overall debt to under 20% of your total available credit, can help you manage your debt and keep your interest fees under control.
Credit cards are a monthly bill. They’re the same as the utilities you use every day. Just like your utility bills, if you don’t pay your credit card bill you’ll incur some penalty in the form of a late fee or an interest charge. The biggest problem is the effect it will have on your credit score. Missed payments reflect poorly on your credit report and lower your score. It’s one of the more impactful aspects of your credit health and can do more damage as lateness continues.
Late payments are how credit card debt gets out of hand. Credit cards have a way of making people feel safe when they don’t pay as the consequences aren’t immediately felt. Utilities can be shut off if you miss just one payment. Credit card debt can accrue and not give you any sense of urgency if you lack discipline in making payments.
In order to avoid falling behind on your monthly payments, talk to your credit card company and set a payment date that would suit your needs. Most credit card companies are willing to change your due date so you have the best opportunity to make a payment on time. Set reminders to make your payments in advance or even have the payment taken automatically from your account. Set a custom amount to be taken to avoid sticking to minimum payments and quickly reduce the debt from your credit cards.
Annual Percentage Rate
Annual percentage rate (or APR) is a fee that is applied yearly to multiple types of credit. It’s present on loans, mortgages and credit cards. APR is an annual representation of your interest rate. This is what many will see when applying for a credit card. APR is it’s own issue because of the many forms it can get you when it comes to debt. The reason it remains unnoticed is that it only comes around once a year, which makes it easy to forget about.
There are multiple types of APR that can affect your overall debt. The one that normally messes people up in the long run is an introductory APR. Having a low introductory APR can be a great incentive towards getting a new credit card. Once the first year is over, the APR can increase without further notice. A credit provider cannot raise an APR without giving 45 days of notice to the debtor. Since an introductory APR is stated to change once the year is up, people can forget in the course of that year.
In order to avoid creating a debt you can’t handle, make sure you talk to your creditor about your APR. If you maintain good standing with your credit and make monthly payments on time, you can try to negotiate your APR down for the next 12 months. Maintaining a low amount of debt shows you are responsible with money to your creditors and gives you leverage in the conversation.
Holding Multiple Credit Cards
Without knowing it, you can accumulate multiple credit cards all with different lines of credit, with varying monthly payments, different annual interest rates and different credit limits. The problem with holding multiple credit cards is that you don’t keep yourself limited to using just one or two. Using many credit cards creates credit card debt in various forms. It can cause confusion in what needs to be paid off and can even grow to a debt amount too big to handle effectively.
The main reason credit card debt piles up with multiple credit cards is because of a major misconception that credit is not money you own. In actuality, credit is money that you borrow from a lender with the intent of paying it back. Debt is what happens when you don’t pay your creditor back on time. Having one credit card and one lender to deal with is a much easier situation than multiple cards with multiple lenders.
If you don’t want the hassle of keeping up with multiple credit cards, then consider paying off the ones you don’t want to use and then only using one. Keeping your purchases to one credit card will streamline your debt management process and keep you from amassing extreme amounts of debt. If you find that your debts are too much to handle, then contact your creditors and look to resolve your debts through a settlement with them. Your creditors will get paid and you’ll move yourself towards debt elimination quickly with some discipline.
One of the lesser known but equally detrimental functions of a credit card, are cash advances. They can be a very bad thing for your debt if you abuse it. The cash advance feature of a credit card allows the owner to take cash from the credit card, much like you do with your debit card. Cash advances are not always offered with every credit card and when they are, they come with very high interest rates.
Ideally, cash advances are meant to be an emergency back up when you don’t have access to your money. This is why taking the physical money out comes with much higher interest rates. Once again, your interest rates can cause you serious debt problems in the long run, costing you more money and time.
The simple way to not deal with the negatives of cash advances, is to not use the feature. If you find yourself lacking money, then set aside some pocket funds from your monthly income. Make sure you have the same amount taken out each time to build consistency. This will keep you away from cash advances and building unnecessary debt.
Credit cards can create more debt than you can imagine. Credit card debt plagues many Americans today and can be relentless with interest fees, APR and other things that can add to it. Begin paying off credit card debt and start exhibiting better discipline with your credit to enhance your life and stave off serious debt. If you have any issues with how to get started or if you feel the need to seek a different form of debt relief then don’t hesitate to contact a debt relief specialist.