Credit cards are the most commonly held source of debt among Americans today. While carrying some debt is beneficial to your overall financial health, too much debt can be damaging. Before ending up in credit negotiations or a debt settlement situation, take precaution to watch your credit card spending and avoid the following debt traps:
Using Credit Instead Of Cash
While making some purchases using a credit card is helpful to your overall financial goals, using credit when cash in not available is a bad habit that leads to trouble. Credit card purchases should be planned and backed by available cash flow. If you are going to purchase using credit, be sure you have enough money in cash to back up that purchase for at least half of the total purchase amount. Credit cards should not be used for convenience or impulse purchases, rather they are to be used strategically to buy items that you can afford to pay off within six months to a year. If you find yourself using credit to bay bills or buy essential living expenses, you should take a closer look at your finances as this is a sign of financial trouble.
Poor Credit Deals
It isn’t uncommon for people to use credit cards to fund certain purchases or cover expenses like tuition or car payments. The worst part about doing this is that credit cards are going to carry a much higher interest rate than a student loan or car loan through a direct lender. Even if you aren’t using a credit card for expenses like these, many people never bother to shop around for a good credit deal. Chances are those pre-approved offers you get in the mail are one of the worst credit deals you can get. Creditors know that you are looking for quick and easy money, which is why the offers you didn’t solicit arrive at your front door. However, these cards are typically high interest cards that will cost you much more down the road. Take the time to shop around for multiple offers and find the best card at the lowest interest rate. Also, monitor your current cards to ensure the rate isn’t inflating without warning and negotiate the terms of your accounts if they become unreasonable.