If you’re struggling with credit card debt, here are five of the most common pitfalls to avoid to keep you from staying stuck in debt or even go further into debt.
- Making only the minimum payment. There is one surefire way to stay in credit card debt forever: make only the minimum payment on your credit cards each month. The minimum payment required on credit cards is so low and credit card interest rates so high that if you pay only the minimum, it will make little dent in the loan balance. Instead, pay at least 4% of the outstanding balance on your card off each month, more if you can. This will enable you to climb out from underneath the debt heap within a couple of years (how long it takes will vary depending on your credit card APR). Follow these tips for freeing up money to increase your credit card payments and get rid of credit card debt faster.
- Being reactive rather than proactive. As credit card balances start creeping upwards, most people go into a state of denial, thinking that the situation will somehow right itself further down the road. Maybe you’ll get a salary increase, maybe your spouse will get a job, maybe that business deal you’ve been waiting for will come through so you can pay the debt off. Tomorrow. Or if not then, the day after.
The cold, hard truth? If you’re not proactive about getting rid of your credit card debt, the problem will only get worse. The good news is that with a little bit of attention, you can take control of the situation. First, make a list of your income and your total expenses. Then, calculate your total credit card balances, so you know precisely how much you owe. Look at your expenses and see where you may be able to cut back on your spending to free up money for paying down your credit debt. That will involve making sacrifices in some areas of your life, but you’re better off doing that than continuing to make card issuers rich by paying high credit card interest charges. - Cancelling credit cards. Cancelling your credit cards may seem like the most obvious solution to avoid getting deeper into credit card debt, but it actually creates another problem. Cancelling credit cards can cause your credit score to go down for two reasons: Firstly, one of the factors used to determine your credit score is the length of your credit relationships. Secondly, when you cancel a credit card, the remaining balance will be reported to the credit rating agencies as using up 100% of your credit limit, making it look as if you’ve maxed out your card. This pulls down your credit score even more. In short, while cancelling cards might seem like a great idea, you could end up shooting yourself in the foot.
- Skipping a payment. If you can’t make the payment one month, but pay the next month’s payment, it can’t be that bad, right? Actually, it can. A missed credit card payment will create a bad mark on your credit report and sink your credit score big time.
- Charging away. If you’re already in credit card debt, one of the worst things you can do is to continue to use your credit cards. If you can’t afford to pay for something in cash, don’t buy it with your credit card. If you find that carrying credit cards around just end up being too much of a temptation, put your credit cards in the drawer, and leave them there.
It usually takes a while to get into credit card debt, and it will take you a while to get out of it too. However, by avoiding the above common mistakes when managing credit card debt, you’ll be able to take charge and begin to pay off your debt going forward.
