Credit cards can be a powerful tool, or a deadly one. Wielded correctly, they can boost your credit score. Used poorly, they can severely damage it. Why not avoid it altogether? For the average American, this is not an option. Buying a new car or house demand good credit – something that can be built by using one’s credit cards wisely. So what can you do? Have you tried to use your cards wisely, only to find yourself slowly (or quickly) sliding down into a pit of credit woes? Employing these 7 tips may help you save on your credit card debt:
1) First and foremost: If you are finding it too hard to make monthly payments, seek credit counseling help. Be sure to choose a reputable non-profit organization as recommended by such organizations as the National Foundation for Credit Counseling (www.nfcc.org) or the Federal Trade Commission (www.ftc.gov). These organizations can negotiate with credit issuers in reducing your monthly payments, the interest rate, and further credit use. This step may negatively affect your credit score, but only to a certain extent. Filing bankruptcy (chapter 7) will stay on your record for 10 years.
2) Always pay on time. Late payments often drive up the interest rate on credit cards. What once was a 0% can quickly rise to over 30% because of one late payment. If you are 30 or more days late in your payment, card issuers will likely report this on your permanent credit history. To combat this, use the automatic bill payment service offered by most banks with an on-line presence. Set up payments to go out on a regular basis, freeing you from the hassle of paper and stamps. Just be sure your payment arrives prior to the due dates.
3) Do not pay one credit card with another. Sounds like common sense, but a person can quickly amass debt by transferring balances. Card issuers often dangle a low to no interest rate for a set period if you transfer a balance from another card. Beware! Most companies will add a 3% (or more) fee for this service. Once the grace period (typically 6 months or less) expires, a higher variable interest rate begins. This rate is often determined at the time the period expires, and card issuers can raise it to the maximum at will. This option is only good if you can pay off the balance before the expiration period, and have the iron will to pay it off.
4) Carry no more than 6 credit cards. Credit reporting companies, such as Experian, (www.experian.com) highly recommend carrying 6 or less credit cards. They are concerned with the amount of available debt you have, and consider it a potential liability, especially if it reaches at least 50% of your yearly salary. Yes many popular department stores offer a discount by opening a credit card with them. But think twice before accepting it, as this will reflect on your credit report. Is it really worth saving a few dollars?
5) Negotiate with your card companies for lower interest rates. This is self-explanatory, but cannot be stressed enough. Card issuers are interested in your business, and will often lower rates faced with a potential lost customer. Don’t worry, the worst thing they can say is, “no,” and they will not penalize you for making the phone call.
6) Budget yourself for a regular monthly payment. Wait, isn’t the point to pay off your cards? Yes, and no. Gaining financial control should be your primary objective, and if you are in over your head then paying off the cards should be your first concern. Pay off the lower balances first, and once paid off apply it to the next one until you are finished. Yet, credit card issuers, bank, mortgage companies and auto loan experts prefer to see a long history of regular and responsible credit usage. To this end, do not carry balances more than 25% of your yearly salary, and do not over-extend yourself beyond your budget. So set that money aside every month, and once you obtain your dream house and car, by all means pay off those cards.
7) Last, but not least, buy only what you can afford. Sounds easy, but come holiday seasons the real temptation begins. In theory, you can literally nickel and dime your credit into oblivion, so keep a sharp eye on those expenditures. Set aside a comfortable amount that you can pay every month, and make it your target. Card issuers often charge a monthly payment equal to 4% of your outstanding balance, and you can plan your monthly payment accordingly. (Consult your credit card terms & conditions for exact figures before using this approach.)
With careful planning, you can turn those deadly cards into a powerful tool to boost your credit. Who knows? Maybe you’ll finally qualify for one of those car offers for 0% financing. Make those cards work for you.