Credit Card Debt Death Traps

You open the envelope with delight and pull that brand new credit card out with a smile. You can’t wait to call the number, activate your card, pull off the sticker and head out the door. Wait! There are a few things you should know before you use that card. The last place you want to find yourself is deep in credit card debt.

Many Americans today have a credit card, if not two or three. Credit cards are a good resource to have available, but only when they are used correctly. Credit cards are the number one source of debt in the US, and more and more people are falling victim to that small piece of plastic. Think carefully about how much power your credit card has over you; what is the credit card interest rate you must pay on purchases? How high has that balance grown? How many times have you made late payments and had to pay a fee? Your credit card will rule your life if you let it.

Before you even think to use your credit card for a purchase, ask yourself this question. Will what I am buying have monetary value when I am finished paying for it? For example, you purchase a stereo system that you can’t afford for $300.00. You pay the minimum $15.00 monthly payment and you have an interest rate of 16.9%. It'll take 24 payments to pay off your balance and you will have paid 55 dollars in interest that adds to your credit card debt. Is that stereo really worth two years of debt? This is where most people fall into the trap; don’t buy anything that you can’t afford.

What then is the point of credit? Credit is a resource to be able to purchase items on a time line other than how you get paid or for long term investments. Credit is for buying a car or a home. Credit cards are for things that we need in emergencies and to manage our monthly budgets. For example, you wish to improve your credit score so you get a credit card. You then charge all your monthly groceries to the card. You pay the entire balance at the end of the month. This is a proper use of a credit card.

Sometimes unforeseeable events strike when we least expect. The water heater goes out, a tire goes flat, or you need to repair your roof. It happens, and you use your credit card. You now have a choice. You can pay the minimum every month and fall victim to the interest rate, or you can plan out how to pay for your balance in a timely manner and avoid paying a large amount of interest. Be careful here, don’t stretch yourself too thin. Use a “pay-off” calculator to look at your options, and pick the one that is best for you.

Another part of the credit card debt trap is late payments. Late payments result in fees, fees, and more fees. Plus, every fee is subject to the credit card interest rate. Over-balance fees, late payments fees, and anything else that may come your way. Make sure that you never charge more than you can afford to pay. Credit card minimum payments are based on a percentage and they differ from company to company. If you currently have a balance of $500.00 and you are paying the minimum $15.00, but you decide to charge an additional $750.00 because you saw a flat screen TV you just had to have, you are looking at a $42.00 monthly payment instead of your easily affordable $15.00.

When it comes to having a credit card, make sure that you keep in mind your credit card interest rate, and the consequences if you abuse that card. Don’t fall victim to late payments, over balance fees, high interest rates and the ensuing credit card debt they lead too. Be smart; be responsible. Having the knowledge is the key to being credit card debt free.