While credit cards are a useful financial tool, it’s important to use them when it makes sense and to do so moderately. If not, interest rate payments can pile up, your identity and account info can be compromised, and you could find yourself in a perpetual cycle of credit card debt. In order to help avoid these downfalls, we’d like to offer a few tips:
Tip #1 – Avoid theft
The more your information is out in cyberspace, the more accessible it is to criminals. Once a hacker has your identity or account information, they typically start by making small transactions and then after time will go for the “big stuff.” Avoid this by limiting the amount of credit cards you open – we’d recommend having 1-3 open accounts.
Tip #2 – Make payments and keep a low balance
Be sure to ALWAYS make at least the minimum payment on your credit card(s), and be on time! Typically, I suggest aiming to keep the balance below half of the credit limit as a general rule of thumb.
Tip #3 – Don’t get caught in a vicious cycle
Whenever you can pay more than the minimum to bring a balance down, do so. If you’re simply making payments toward your credit card balance, and then never have cash, you’ll find yourself using your card more because you don’t have cash and then it keeps rolling in a perpetual cycle.
Tip #4 – Watch interest rates
Keep an eye on interest rates and what you’re paying in interest each month. It’s always a good idea to focus on paying down the debt with the highest interest rate first. Also, watch out for retail credit cards. Most of the time, the fancy coupon booklet they give you after signing up is not worth the 20 percent interest they charge down the line.
For more tips and tricks to tackle credit card debt or avoid credit debt issues, be sure to contact your advisor.