- DebtKO
How To Avoid Credit Card Debt - The Dangers We Should All Avoid
Credit cards are easy to acquire and even easier to get you into a lot of debt. And getting out of credit card debt is a lot harder than getting in and definitely not as much fun!
So here are our top 5 credit card debt pitfalls that we should all avoid.
1. Spending too much on your credit cards
It sounds obvious but it's well-known that running up too much debt on a high interest credit card is very dangerous for your finances. Using credit cards to spend freely is enticing, especially to young people, but doing so can put you under more financial pressure than ever before. Also, you shouldn’t use money set aside for necessary expenses, like rent, to pay off your balances. To effectively eliminate credit card debt, you need to be patient. Your plan shouldn’t involve a cycle of using your cards for most expenses, and then fully paying them off. Be realistic so that you’re prepared for potential financial surprises.
2. Misunderstanding APR and fees
Most young people know that unpaid balances accumulate interest, and that only paying the minimum invites debt. But it’s easy to neglect your credit card's terms and conditions. Though companies may offer grace periods and introductory APRs, don’t ignore the details of your credit card agreement. You need to know when your introductory APR ends, your credit limit, and your payment due date, as well as your purchase APR and penalty fees if you miss or pay late. If you miss a payment, it is likely to negatively affect your credit score.
3. Abusing your credit card limit
Many people don't know, or forget, that a high credit card utilization ratio does in fact lowers their credit score. Using too much of the balance on your credit card signals a higher lending risk to creditors. To avoid higher interest rates and credit disapprovals, keeping your utilization under 30% is ideal. To do this you could ask for a limit increase and commit to not using it. Or you can budget your spending properly.
4. Applying for multiple credit cards at once
Getting approved for multiple credit cards is a dangerous opportunity for more debt than ever before. Without self-control, it’s not something you want to pursue. Also, credit applications make a hard inquiry on your credit. This can lower your score by multiple points. Though this can reverse over time, you shouldn’t apply for cards you won’t get approved for, cards you don’t need, or multiple cards at once. It can damage your credit profile.
5. Not budgeting properly
To budget your finances for success, you should list your monthly income and expenses, and consistently track them. You should always be motivated to keep your outgoings lower than your income. Doing so is invaluable to reducing financial stress. There are plenty of smartphone apps on the market which can do this easily.