Credit card companies want you to have a credit card—up to 3 billion invitations are issued in the United States each year, encouraging people to sign up. If used responsibly, a credit card can help improve your credit score, protect purchases, and allow you to spread the cost of goods over several monthly payments.
But credit cards are not without risk—you could find yourself in rising debt if you’re unable to make the repayments, and missed payments can negatively influence your credit score, making it harder to obtain credit in the future.
Card companies also often target younger people, and statistics show that the average credit card debt for students in 2019 was $1,423, a 32% increase over the average balance of $1,076 in 2016.*
If you have multiple credit cards are worried that your debt is spiraling out of control, there are some practical steps you can take towards financial freedom.
Switch to a 0% balance transfer card
If you’re trying to manage debt on several credit cards, moving your existing balance to a 0% balance transfer credit card could help you pay down debt faster. Check the latest credit card deals to find the right one for you.
For those who are recovering from debt, there are also credit cards designed to rebuild credit scores.
Avoid using your credit card to withdraw cash
Withdrawing cash from an ATM using your credit card might seem like a quick fix if you find yourself with an unexpected expense, but there are financial consequences to doing this. These cash advances allow cardholders to essentially borrow money by acting as a short-term loan.
It’s an expensive way to borrow money, and the costs of withdrawing cash from a credit card can quickly add up. Unlike credit card purchases, for which you have at least 21 days to pay off the expense before interest accrues, cash advances accrue interest from the date of withdrawal.
There is also a cash advance fee to consider, which is usually between 3% and 5% of the amount of money withdrawn. It’s also worth noting that the interest rates for cash advances are usually steeper than those paid on balance transfers and purchases.
Check-in on your online account
Almost all card issuers offer their customers an easy way to check their finances online. Checking in weekly can help you stay on top of spending and highlight any areas in which you could rein back on purchases—are you spending far more at Dunkin’ than you thought?
Reviewing your expenditures in this way can stop debt from spiraling out of control. If you see that you are reaching your card limit, or nearing the point where you will struggle to meet the monthly repayments, then it’s time to step away from the credit card until the balance is reduced or cleared.
Weigh up rewards against fees
Credit card issuers are competing for your business and therefore offer attractive sign-up bonuses and spending rewards. These perks include cashback, reward points, and travel miles. It’s relatively easy to find a card issuer offering a seemingly attractive 2% cashback on purchases.
However, research has shown that the average annual percentage rate for rewards-based credit cards can be as high as 24.25%.** So, if you are not paying off your balance each month, the 2% cashback won’t cancel out the interest charges.
Remember, at some point, card issuers will be expecting a return on the investment they’ve made, so earning rewards shouldn’t be a deciding factor in choosing a card, especially if you are unable to pay your balance in full when the bill arrives.
Consider debt consolidation
If you’re concerned about repayments mounting up, or have a multiple credit cards that have become unmanageable, debt consolidation may provide a practical solution.
Debt consolidation combines all your existing loans, potentially saving money in interest, giving you a single monthly payment to focus on, making it more straightforward to keep track of your debt.
Moving beyond credit card debt
A credit card can be very beneficial if you use it strategically. It can help to maintain a solid credit score, earn rewards, and help you to make larger purchases more easily.
However, if payments are late or missed, it is easy for credit card debt to spiral out of control. If you would like a free consultation to discuss your debt challenges, please contact our team at 800-940-5449.
Effective Debt Relief has been helping customers take control of credit card debt for over 16 years. We’ve worked with almost 30,000 people to provide debt counseling, personal consolidation loans, and debt reduction programs that are designed to free our customers from debt.