How to avoid credit card debt?

A customer paying for items with a credit card

At first, Kristin planned to use her credit card just for emergencies—and perhaps for that occasional item she wanted to buy but could not pay for with cash. Then things got out of hand.

Kristin confesses,

I started shopping up a storm and went nuts ordering from catalogs. I bought things I didn't even care about.” 

Now Kristin has a different view of credit cards,

 I had no idea how much that little plastic card would mess up my life,” 

Kristin’s story is not an isolated one. A growing number people are paving the path to financial peril using that little piece of plastic, the credit card.

In some cases, companies aggressively target those who like to spend.

Likely they know that for many eager spenders, credit cards can become, as financial adviser Jane Bryant Quinn calls it, “a financial drug.” “The more they're used,” she says, “the harder it becomes to stop.”

Granted, having a credit card can be advantageous—for example, when an emergency arises or when it is not wise to carry cash.

That is one reason why credit cards have become so popular in many countries.

If it is not used responsibly, however, a credit card can hurl its user into a financial bottomless pit.

Counting the Cost


Typically, a printed statement is sent to you near the end of each month, showing the purchases that were made with the card as well as the total amount that you owe.

The statement also indicates how much you are expected to pay right away. Usually, this amount is quite low.

As a result, you might reason,

This isn't too bad. If I just pay the minimum required amount each month, in time my debt will be paid." 

However, the problem is that after a grace period, you will be subject to a finance charge—interest—on the amount that you still owe. And interest rates on a credit card can be quite high.

How long does it take to eliminate a credit card bill if you pay only the minimum amount due?

Citing a hypothetical example, a booklet published by the Federal Trade Commission and American Express notes:

If you have an outstanding balance of $2,000, with 18.5% interest and a low minimum monthly payment, it would take over 11 years to pay off the debt and cost you an additional $1,934 just for interest, which almost doubles the total cost of your original purchase.”

As you can see, if you are not careful, you can dig yourself into a very deep financial hole with a credit card.

Kristin agrees,

I was actually paying almost double for everything. When I started having trouble making payments, the creditors added late fees. I had no idea what to do.”


Use Credit Card responsibly


Kristin learned the hard way that a “buy now, pay later” approach to shopping can be dangerous.

Debts can snowball, and before you know it, your minimum monthly payment may be paying for little more than your finance charges.

How can you avoid falling into such a financial trap? Here are some tips:

● Keep track of your purchases and carefully examine their monthly statements to make sure that you are being charged only for purchases you have made.

● Pay your bills promptly, realizing that a good credit history will likely be helpful later—perhaps when applying for a job or for insurance or when financing a car or a home.

● If possible, pay the full amount owed so that you can avoid being charged a high interest rate on the balance.

● Do not give out your credit card number and expiration date over the phone unless you know the person or the company you are dealing with.

● Never lend your credit card to anyone, not even to a friend. After all, it is the credit record of the card owner that will be affected if the card is misused.

● Avoid using your credit card as a means to get quick cash, as if it were a bank card. Remember, cash advances usually carry a higher interest rate than purchases.

● Do not fill out and send in every credit card application you receive. For most people, one card is enough.

● Use your credit card with respect, fully realizing that when you make a purchase with it, you are still spending real money, even though you are not using bills or coins.

Whether you have a credit card right now or are contemplating getting one in the near future, become thoroughly acquainted with both the benefits and the risks. Ask yourself the following questions:

Why do I feel that I need a credit card? Is it simply to acquire material things, to have the latest in fashion, to impress my friends?

Ponder these questions. If you do, then whether you have a credit card or not, you will avoid the financial heartache that many have brought upon themselves.

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