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| Credit cards allow us to pay later for goods that we want today. Banks and other financial institutions issue credit cards that in essence lend us money to buy merchandise. While there is a 20-25 day grace period in which you do not have to pay interest on the borrowed money, any outstanding debt not paid by then accrues interest, often at a high rate. The average interest rate is 18%, but many cards, especially from department and clothing stores, have rates above 21%! In the U.S. today the average credit card balance is around $6,000. That means that the credit card holder is paying $1,080 more per year in interest than those who pay for the same items using cash and/or debit cards. Put $1,000 per year into a stock fund earning 12% and after 10 years you've got over $17,500. Certainly you can think of better things to do with $17,500 than giving it to a credit card company. College? New car? Down payment on a house? Avoid Getting Hooked As a credit card holder, you will get tons of advertisements mailed to you trying to get you to apply for new credit cards. They will entice you with gold and platinum colored cards, high credit lines, and low introductory rates. Don't be tempted! Stick with the one card you've got. If you try skipping around, you run the risk of having a negative impact on your credit report. Anyway, since you are paying off your balance each month, trying to get deals on lower rate cards is meaningless. Here's an idea: Take that one credit card you now own and store it in your desk or kitchen drawer. Make your purchases with cash, checks, or debit cards. If you don't have a credit card handy, you'll be less likely to use it on impulse buys. Only take your credit card with you when you know you'll be purchasing a big ticket item, or if you are going on a trip (for emergencies). Don't use credit cards to pay for recurring expenses like groceries, gas, or utilities. Not only will you have the same expense next month, but you'll have to pay off the credit card, too. If you have already gone overboard and have a major amount of credit card debt, you need to take action now to reduce the debt burden before it becomes overwhelming. We have assembled a good bit of information on what to do: Click here for more on reestablishing credit Click here for credit repair tips and tricks | Verify your credit report!
The report is free if you request it within 30 or 60 days of being denied for credit, otherwise there may be a small fee under $10. Tips for reducing Credit card debt Now call each of the credit card companies whose cards you cut up and have them reduce your credit line to just above the balance on the card. Then ask each of these same credit card companies to lower the interest rate you are being charged. Remind them that it is better to get 16% of something than 21% of nothing. Now call the card you kept (the one with the lowest interest rate) and ask them to increase your credit line to an amount equal to your total balances on the other cards. Let them know that you are going to be transferring balances from higher rate credit cards (something credit card companies like to hear) and you will need some balance transfer checks. Make sure you use balance transfer checks and not cash advance checks, which usually have a fee and higher interest rate. The one card company may have to do a credit check to authorize the increase. This is where lowering the credit lines earlier will help. By having less available credit, you have improved your credit risk. While you're on the phone with the best credit card company, ask them to lower your interest rate, too. The worst they can say is "no". Finally, transfer as much of the debt you can from the higher rate cards to the lowest rate card. If you are able to transfer the entire balance on any or all of the higher rate cards, call them and close the account. Now the bulk of your credit card debt should be on one or two credit cards. |
