How to tame your credit card nightmares
By Dawn Papandrea
October 23, 2015
From the invasion of the credit snatchers, nightmare on debt street and tales from the billing cycle crypt, credit cards can lure you into dark places.
“Misusing them can really keep you chained up against your will in the sense that the credit card issuer has control over your paycheck,” says Denise Winston, financial expert and health care consumerism strategist.
But you can overcome your fears and make smart credit card decisions.
Come explore the scary side of credit cards (if you dare), so you can learn how to steer clear of financial fright.
Invasion of the credit snatchers
From identity thieves to fraudulent charges on your accounts, most people don't see these credit creepers coming. Luckily, there are some measures you can put in place to protect your plastic.
- Set up alerts to notify you when account activity occurs. You can set up these alerts online, or you can call the number on the back of your card. If a text or email comes through for a transaction you didn't make, call the creditor to report the unauthorized charge.
- Hire a service to monitor your accounts. “The bad guys always seem to be one step ahead,” says David Henderson, a certified financial planner with Client One Securities in Colorado. He recommends signing up for a credit monitoring service. “You'll be notified if new credit applications are being opened in your name,” he says. Henderson adds that it's important to look at credit statements each month, line by line, to make sure charges are yours. Many times fraudsters will make a small charge first to see if it goes through, he says.
- Watch out for phishing scams. “If you get an email or text that says ‘You have an unauthorized charge, click here,' don't click,” says Winston. And don't ever give your personal information over the phone. Instead, delete the message or hang up, and call the creditor to confirm if the fraud alert is legit.
Getting a grip as to where you are in your credit situation, and coming up with a plan, is the best thing you can do to make the boogeyman go away.”
— Denise Winston,
financial expert and health care consumerism strategist
Nightmare on Debt Street
If you've had a credit card balance haunting your dreams, that's not unusual.
The only way to stop a debt demon is to get that balance to zero. Face your fear, and tackle it head on. “Pull back the curtain and look at your finances,” says Winston. That means listing every one of your debts and their interest rates. Next, make minimum payments on all of your bills except the one that you choose as your top target. For some people, it might be the one with the smallest balance since it's the most attainable goal; others choose to go after the card with the highest interest rate since that makes the most sense mathematically.
The more money you can throw at your debt, the quicker you will be free of that feeling of dread, says Henderson. “Many of us have areas in our normal budget we can cut back if we needed to.” Check with your cable provider to see if there are discounts available; shop your home and auto insurance each time it comes up for renewal; and spend less on food and entertainment, he says.
To avoid lingering debt going forward, carefully track your purchases. Winston's tactic is to write all of her credit charges directly into her check register in red. That way, she knows she's not spending more than her available funds.
Tales from the billing cycle crypt
Not having an understanding of the billing cycle can unleash the evil of interest on your balance. The most effective way to use a credit card is to pay your balance in full by the due date, in which case, you won't have to pay additional finance charges.
If you're not going to be able to make a payment on a card or any bill, be proactive. If you make the call, rather than making them come after you, they're going to be a lot more open to working with you.”
— David Henderson,
a certified financial planner with Client One Securities
“Most credit cards have a 25-day grace period, meaning you won't be charged any interest if you pay the bill. If you miss it, or pay even a penny less than what you owe, you will be charged interest,” Winston says.
For people who are trying to take advantage of airline miles and other rewards and perks, paying interest will likely cost you more than the benefits you're earning.
That threatening voice on the phone
Getting in over your head financially is stressful enough, but once debt collectors close in, it can be terrifying. Threatening letters and phone calls can make you feel paralyzed. “They'll be like that person in the haunted house trying to scare you into paying,” says Winston.
First off, you need to know your rights with debt collectors. Debt collectors cannot call before or after certain times of the day, or multiple times per day. And they cannot threaten to harm or arrest you, or use vulgar language.
The best way to fight off debt collection is to avoid it altogether. “If you're not going to be able to make a payment on a card or any bill, be proactive,” says Henderson. Call the company you owe and talk with them. You may be able to work out a repayment plan to get your bill paid. “If you make the call, rather than making them come after you, they're going to be a lot more open to working with you,” he says.
No matter what goes bump in your financial night, you have what it takes to fight back. “Just turn on the lights,” says Winston. “Getting a grip as to where you are in your credit situation, and coming up with a plan, is the best thing you can do to make the boogeyman go away.”