News
3 Signs Credit Cards Are Ruining Your Finances (And How to Fix It)
There are signs to look out for if you’re worried that your credit card use is becoming a debt trap for your finances. Getty Images
In between persistent inflationAmericans are struggling under the weight of the current economic climate. Prices are rising across the board, from Bomboneria for car insurance. Compounding the problem are high interest rates that are causing the cost of borrowing to skyrocket. For example, since 2021, the average credit card interest rate has rose from 16.45% to 22.63%according to the latest data from the Federal Reserve.
This is bad news for many Americans who rely on credit cards to help them get by. According to a recent survey by Clever Real Estate, 61% of Americans are in credit card debt, and about half rely on their credit cards to pay for living expenses. When bills and debts eat up so much of your household budget, there is little room left to save for a financial emergency or retirement.
If your Credit Card Debt rises beyond your means to pay it off, the impact it can have on your finances can be catastrophic. If your credit card debt is at a level you are not comfortable with, it is time to address the problem before it ruins your finances.
Explore your top debt relief options now and start tackling your high-interest debt.
3 Signs Credit Cards Are Ruining Your Finances (And How to Fix It)
Here are three signs you may have too much credit card debt and tips for dealing with it.
Sign #1: You only make the minimum payments
Your credit card company offers you a grace period, usually between 21 to 25 daysto pay off your balance in full. You won’t incur any interest charges if you pay off your entire balance within this period. However, if you only make the minimum payment on your card, usually around 1% to 3% of your balanceyou must pay interest on the remaining balance.
“You’re in trouble if you can only make the minimum payments and can’t reduce your balances,” says Joseph Camberato, CEO of NationalBusinessCapital.com.
Camberato recommends getting a handle on credit card debt before it gets out of hand.
“If you ignore credit card debt, it can really mess with your[credit]score. A good rule of thumb is to keep your credit card balance below 33 percent of your total limit,” Camberato says.
People with high credit scores often use less than 10% of your available credit.
Find out more about your credit card debt relief options here.
Sign #2: Your credit card debt is mounting
“It’s a bad sign if your credit card balance keeps increasing despite payments being made, which means your debt is growing out of control,” says Leslie Tayne, a financial attorney at Tayne Law Group and author of Life & Debt.
If you find yourself in this situation, it could mean that you are relying too heavily on credit cards to cover expenses, which can lead to a cycle of debt that is difficult to break. To regain control, create a strict budget that minimizes unnecessary expenses. Additionally, consider increasing your income by volunteering for overtime at work, asking for a raise if warranted, or taking on a side job.
Sign #3: You’re behind on payments
“Another warning sign is if you start missing payments,” Camberato says. “These are clear signs that your spending is outpacing your income.”
You may be able to get away with minimum payments as your credit balance continues to grow, but this can eventually lead to late or missed payments.
“Late payments and high balances can cause significant damage to your credit score, making it harder to get approved for credit in the future,” Tayne says. “And if you do get approved, you’re more likely to pay high interest rates. Bad credit also makes it harder to rent an apartment, pay utility bills, and even get certain types of jobs.”
4 Strategies for Dealing with Credit Card Debt
The first step to reducing your credit card debt is to cut discretionary spending to free up more money that you can put toward your debt balances.
Start with recurring bills, like rarely used gym memberships or streaming services. And consider shopping at different car insurance companies to see if you can find similar coverage at lower premiums.
Then consider your options, which may include the following:
Debt Repayment Strategies
The two most popular strategies are: debt avalanche and debt snowball methods. The debt avalanche method focuses on paying off the debt with the highest interest rate, while the debt snowball method prioritizes paying off the smallest balance on your credit cards first. You’ll likely save more money with the debt avalanche method, but you may prefer the debt snowball method if you find that the momentum of quick wins will keep you going.
Debt Consolidation Loan
A debt consolidation loan allows you to combine all of your credit cards into one personal loan that you repay in fixed monthly installments over a specific term. The benefit of a debt consolidation loan is that you can get a lower interest rate and simplify your finances by replacing multiple payments with a single one.
Credit card for balance transfer
With good credit, you may qualify for a credit card balance transfer with an introductory APR of 0% for a specific period, usually up to 21 months. This can give you plenty of time to pay off your debt interest-free, but be aware that these cards often come with an introductory balance transfer fee of 3% to 5% of the amount you transfer on average.
Credit Card Debt Settlement
One way to lower your credit card balance is to call your creditor and negotiate a lower balance. Alternatively, debt settlement Companies can negotiate with your creditors on your behalf. Consider the pros and cons of going this route and make sure you go with a reputable company, Camberato says.
“Do some research, read reviews, and make sure the company is legitimate. While some companies can help, others can do more harm than good. Some companies may tell you to stop paying your credit cards and pay their company, and this leads to late payments and a destroyed credit score,” says Camberato.
The final result
There are some big signs to look out for if you’re worried that your credit card debt is impacting your finances — but there are also some decent solutions to fix the problem. In addition to options like credit card settlement and debt consolidation, you might consider working with a credit counselor if you’re having trouble managing your finances and credit. These counselors can help you create a budget or debt management plan to help eliminate your credit card debt.