Happy Halloween! These guys are cute, even when dressed up as ghosts! Unfortunately, credit card debt is never cute! Read on for reasons why you should avoid the horrors that credit card debt can bring.
Don’t Let Credit Card Debt Haunt You!
Credit card debt, and the horrors that it can bring, seem to be synonymous with all the ghouls and goblins that pop up on grand display during the month of October! In fact, it somewhat surprises me that we don’t see more adults dressed up as a big, blood-sucking, high-interest credit card, complete with a ball and chain for full effect, that’s draining the life force out of their wallets each month. I get it though, Halloween is a time to escape realities and have festivities full of fun and fright, and there isn’t a whole lot of mystique when it comes to credit card debt.
To help save you, dear reader, from the agony of experiencing the pains and perils of crushing credit card debt, I’ve compiled a list of 6 reasons why high credit card debt should be avoided at all costs.
Making just the minimum credit card payments due each month:
Depending on your credit card, the amount due and interest rates, you could find yourself paying for 20 to 30 years and collecting thousands of dollars in interest fees. Think about how old you are right now. Now tack on 20 years. Do you really want to be paying for the 9th Season of the Gilmore Girls on Blu-ray when you’re that old? Okay, I tricked you, there’s no 9th season of the Gilmore Girls, and everyone knows there were only 7 seasons. That being said, the entire series is up on Amazon for $109.90 right now. Tempting, but I’ll pass. If I do bite, I’ll do so without using a credit card. I’m looking at you, Mr. Debit Card!
Utilization Rates – Killer of Credit Scores
A real killer of credit scores is what’s known at Utilization Rate. This means that out of your total balances available how much of those balances have you rolled over into the next month after a purchase was made. Typically, the more credit you have that’s showing available the better your score will be. Keep the credit card vampire’s away from sucking the life out of your credit score by making purchases you can pay off within a month. If you can’t pay a purchase off right away be sure to pay more than the minimum payment!
Closing Credit Cards – What’s the harm in closing your credit cards?
You’re doing all the right things and attacking your debt. You just paid off your debt and decided you don’t need credit cards after all. Feeling accomplished (which kudos to you for paying off your credit card debt!) you proudly close your accounts! Next month you go to check your credit score only to find out you’re in a worse spot with your score than you were before you paid your debt off! Be careful when closing accounts to ensure that you don’t lose a large chunk of your credit history and worthiness as closing multiple accounts at once can be a bad sign. Another thing to watch for is closing a recently paid off credit card and causing your utilization rates to go up. If you do plan on closing accounts you may want to start with your worst card (highest interest rate or fees) and watch the impact before closing out another account.
Missing Payments – Late fee horror stories!
So you missed a payment and now it’s going to be late. No big deal right? Wrong! Unfortunately, paying your creditor late will typically result in a late fee. Most fees vary between $20 to $35 dollars. By missing a payment you’re already in the hole, but the worst part is still to come. Let’s say you miss a payment for 60 days or more. Your creditor will likely charge you not only the late fee, which will continue monthly until you’re current, but they will also increase your interest rates. As you can see, this can cause your financial status to flush right down the drain. The easiest way to avoid falling into this trap is, of course, to make your payments on time but also make it a practice to only charge items you know you can pay for within one billing cycle.
What’s Another Three, Four or Five Cards?
Having many different credit cards may seem like a great idea. Sure, maybe at one point the promotional rate was great, or the balance transfer was too great to pass up. What could go wrong? There’s always the risk of using cards unnecessarily, especially department store cards that might offer in-store discounts for using their cards and obliterate your available credit. Which in turn might affect your ability to pay, which may cause you to be late and receive a fee which could cause…well, I’m sure you get the picture. Things can spiral out of control and having access to many cards may not be the best idea, especially if you’ve struggled with impulse buying before.
Balance transfer rates biting back!
Doesn’t it sound great? Kill the interest rate I’m getting on one card by transferring the debt over to another! Yes, there are occasions where transferring your credit card balance to another card that’s on a low or even zero percent interest rate can be a good idea. However, there’s a big catch to doing this. Those fantastic introductory terms have an expiration date. Imagine if you don’t pay your original debt back timely. Okay, perhaps not the worst thing ever, but take it a step further. Now you have another credit card and an old card that has no balance. It hasn’t really been paid off and what can cause trouble is using that card before the new card with the introductory rate has been paid in full, thus increasing the total amount of debt owed. The worst case scenario is you end up having two cards that are maxed out, which can lead to a whole slew of debt repayment horrors!
Hopefully, this list of reasons to avoid credit card debt helps shed some light on what can go wrong, sometimes drastically so, when relying heavily on using credit cards!
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