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How To Pay Off Your Credit Card Debt
Statistics can be misleading, and bad news always sells better than good. These two truisms have lead many people to harbor misconceptions about credit card debt. Americans do carry a great deal of it, on average; however the actual statistics for the average American family are not as bad as they are often made out to be. More than half of all families have no credit card debt at all - so any measure of an "average" takes into account less than half of the population!
Credit card debt is a double-edged sword: It can cut you if used improperly or indiscriminately, but it can also be a powerful tool. It can build your credit and be used as a tool for debt management.
Most people understand the negative aspects of credit card debt. You might have felt them yourself: accounts in arrears, an ongoing monthly obligation, facing a high balance due, the monthly payment. A credit card balance can add up long after the purchase was made, with interest adding to your liability every month. Funding a consumer purchase on credit is a commitment to your bank, and when the bill comes the obligation can seem overwhelming.
But wise use of credit card debt can be of great benefit to your financial situation. Low or no-balance cards from any major provider (such as Visa, MasterCard or American Express) shows responsibility on the part of the cardholder, and improves both your chances of getting more important credit and improves the quality of that credit when issued. From home mortgages to brokerage margin accounts, there are many forms of credit which are difficult for the average person to obtain, if he hasn't "paid his dues" at the bottom of the credit totem pole, which is with responsible use of consumer credit and credit cards in particular.
You have a duty to yourself (and your family, if applicable) to keep your credit card debt under control. Here are some points to consider to help you achieve that goal:
- Whenever possible, pay off your balance in full when it comes due.
- Always be shopping for better interest rates, but be very careful to read the fine print on any balance transfer arrangement you are considering.
- Many financial advisors suggest keeping a separate bank account for bills, especially in the case of two-income families. It is also worth considering keeping a separate account, or at least a dedicated debit card, for consumer purchases. This helps you resist the temptation to charge impulse buys by always providing you with a known amount of money available purely for spoiling yourself.
- Avoid "add ons" that credit card companies will try to sell you, such as credit life insurance or disability coverage. The sales pitch is convincing, but the extra cost simply isn't worth it.
- Keep a close eye on your monthly interest charge. That is what your credit card is really costing you! It can sometimes surprise you if you simply take your interest rate, divide it by twelve and add that to the cost of what you purchase. Credit card debt compounds, meaning that you are charged for the total balance every month!
Credit card debt has many potential benefits. It can offer you a way to manage large purchases, give you a financial safety net in the event of an emergency, and can be a very convenient way to manage expenses on vacations or work-related road trips. But it is essential that your credit card is working for you, and not the other way around - otherwise you might end up being one of those statistics that the financial news and opinion columns are so fond of citing.