Most people don’t get out of serious credit card debt overnight. Instead, things go wrong bit by bit until they realize they have a serious problem.
The first credit card mistake is not paying attention to your cards and balances. Your debt can turn into something serious and not so small.
If you find yourself in credit card debt, it can seem overwhelming. Although it can be painful, make sure you find all your debt and keep track of it.
The good news is that credit card debt is almost always manageable if you have a plan and take disciplined steps to reduce it.
Credit Card Pitfalls to Avoid
75 percent of Americans say they don’t make large purchases with their credit card unless they can pay it off right away. Yet when looking at actual spending behavior, more than 70 percent of Americans carry a balance, and less than half are willing to share their credit card debt with a friend.
Those numbers indicate that American consumers are embarrassed by their debt levels, said Greg McBride, senior vice president, chief financial analyst at Bankrate. He told me: “They are more willing to give their name, age and even details of their sex life than to give out their credit card debt.”
Really? Their sex lives? If this is you, let me know. I have some single friends who would love to meet you.
This shame means that those in debt often don’t educate themselves on how to stop the madness. Many people end up using credit card scenarios to normalize their debt in everyday life. Instead, they fall prey to credit card traps, including the nefarious practices of companies that prey on the uninformed and undisciplined. These companies have become very good at extracting more money from us, and we have become very bad at knowing enough to say no.
Do I have to pay off my credit card in full?
For example, the number one mistake people make with their credit cards is carrying a balance or not paying each month.
Amazingly, of the 125 million Americans who carry a monthly credit card balance, half pay only their minimum monthly payments. Sure, it’s tempting to think you can buy something and slowly pay it off, but with insanely high credit card interest rates, that’s a critical mistake.
Let’s say it again. The number one rule of thumb for using credit cards effectively is to pay off your credit card in full each month. I know I said it casually, the same way someone would ask you to pass the salt, but it’s important. Ask your friend who has $12,000 in credit card debt how that happened. Chances are, he’ll shrug and tell you he’s decided to “just pay the minimum” each month.
I used my credit cards for everything and: has paid per month minimums. That plan left me with the utmost failure cards. I just opened it 0% balance transfers try to pay debts. Because I was out of my head and did not have any emergency funds, I used credit cards I had to pay for things I really needed it. i got hurt quite a lot in debt every profession creditor you can think and still do The interest on my debt was crushing me. Just because you have room on the card doesn’t mean you have room in your budget!!!!
– DAVID THOMAS, 32
I’m not going to belabor the point, but you’d be shocked at how many people I talk to who charge off purchases without knowing how much they’ll actually pay when the interest is calculated.
Paying the minimum amount on your credit card is the equivalent of a grown boy letting the school bully take his lunch money on the first day of school, then returning every day with pockets ringing.
Not only will you kick your ass, but it will happen again and again. However, by knowing how the system works, you can figure out how to avoid the pitfalls of the card companies and get out of debt faster.
I asked my readers about the moment they realized they could pay off their debt. Here is what some of them said.
Major turning point the point for me was when I got serious with myself Girlfriend: He did about a third of what you are done but he had about a year’s salary was saved. In: was is ashamed have $40,000 in debt, so me started to apply IWT payment principles Down debt and: implemented that within two years.
– SHAWN WILKINS, 39
Debt was something I got “used to”. my lifestyle was short-term and reactive rather than planned. I was so used to living paycheck to paycheck, I hadn’t felt the freedom of being able to make conscious financial choices. Now money is a tool, not my slave master.
– Dave Winton, 34
Oh man, debt absolutely sucks. I remember crying about it (many times). I had debt for in-state college, my $9,000 chest job, a $3,000 mattress, and my daily shopping habits. I was so unhappy and clueless. When I decided to turn my life around, your book was one of the first I bought and it really woke me up from hell. I felt wealth come into my life just reading it haha. I am now completely debt free and have started a Roth IRA.
— STEPHANIE GANOVSKY, 27
I lacked confidence and felt it was holding me back from enjoying all that life had to offer. After reading IWT (and now living debt free), I am more confident and spend money on experiences, people and possessions that I value.
— JUSTIN CARR, 28
Pay off your credit card aggressively
If you find yourself in credit card debt, whether it’s a lot or a little, you have a triple threat working against you.
■ First, you pay tons of high interest on the balance you carry.
■ Second, your credit score suffers. 30 percent of your credit score is based on the amount of debt you have. puts you in a downward spiral of trying to get a loan for a home, car or condo and having to pay more because of your poor credit.
■ Third, and potentially most damaging, debt can take an emotional toll on you. It can overwhelm you, causing you to avoid opening your accounts, causing more late payments and more debt in a vicious cycle of doom.
When should I pay off my credit card?
It’s time to make sacrifices to pay off debt quickly. Otherwise, you are costing yourself more and more every day. Don’t procrastinate because there won’t be a magical day when you win a million dollars or “have enough time” to figure out your finances. You said that three years ago. Managing your money should be a priority if you ever want to be better off than you are today.
Think about it. high credit card interest rates mean you’ll likely pay huge interest on any balances you carry. Let’s say someone owes $5,000 on a card with a 14 percent APR. If Dumb Dan pays the minimum monthly payment of 2 percent, it will take him over twenty-five years to pay off this debt. No, that’s not a typo, it’s really twenty-five years. Throughout the process, he will pay more than $6,000 in interest, more than the original amount he spent. And that’s assuming he doesn’t rack up more debt, which you know he will.
If you are upset, you should be. This is how people can spend their entire lives in credit card debt. You can do better.
The difference. When you pay off your credit card
Smart Sally, on the other hand, is sick of her debt and decides to be aggressive about paying it off. He has several options. If he pays a fixed amount of $100 a month, he will pay about $2,500 in interest to get him out of debt in six years and four months.
This shows why you should always pay more than your credit card minimum. There is also an added benefit to doing this. it fits perfectly into your automation system explained in Chapter 5.
Or maybe Smart Sally decides to pay a little more, say $200 a month. It now takes him 2.5 years to pay off the debt, including paying about $950 in interest. Everything from tweaking to his payments. Or what if Smart Sally gets really aggressive and charges $400 a month? He will now pay off his debt in one year and two months, totaling just over $400 in interest.
That’s just paying $100 or $200 more a month. Don’t have an extra $200? How about $50? Or even $20? Even a small increase in the amount you pay each month can dramatically shorten your time to stay out of debt.
If you set up automatic payments (which I discuss here) and pay off your debt, you won’t pay any more fees. You will not pay finance charges. You will be free to grow your money looking ahead. In the eyes of the credit card companies, you’ll be “dead,” a catchy nickname they actually use for customers who pay on time each month and therefore generate virtually no revenue.
You will be worthless in their eyes, which is perfect in me. But to beat them, you have to prioritize paying off what you already owe.
I spent four years there college shelf up a debt I was sure of I would easily pay once I started working. In: Spring in Las Vegas Vegas, Mexico, and: Miami. In: bought Manolo Blahnik shoes. I went out some of weekly nights. I didn’t have any in the event that I would like to spend five post-graduation years of paying off that debt off after five years which i could no holiday, could not buy fancy shoes, and can don’t go out too much in general. So the day when I sent in my final payment on my loan card company, In: decided that that payment will be mine last. I promised myself that i will never go again in debt.
— JULIE NGUYEN, 26
Frequently asked questions about credit card mistakes to avoid
H3: What is the most common problem with using a credit card?
Late or partial card payment. Late or missed payments may result in higher fees. This is a common credit card error that usually happens when you don’t pay on time. Failure to pay the card in full can also have consequences.
What is the risk of credit cards?
Risk of damaging your credit score. Credit cards affect credit. Use your cards correctly and you can raise your score, but if you make a mistake, such as missing a payment for 30 days or more, your credit score will go down.