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One of the easiest ways to fix credit card debt is to know how to avoid it from the beginning. By following a few simple guidelines and avoiding bad credit card habits, you can steer clear of a potentially disastrous situation that is becoming more prevalent among many Americans. And, if you’ve already fallen into debt, you can help yourself by correcting some of these potentially costly habits and possibly pull yourself out. Bad Habit #1: Misusing balance transfers Transferring balances on a high-rate credit card(s) to lower-rate cards can be an effective technique, but it’s easy to make it a good idea gone wrong. By transferring balances from a high-rate credit card to a low-rate card, you could potentially save a significant amount of money each month. This can help you to pay down the overall balance in the long-run. But, it is important to choose the right credit card. Be careful of cards with a low, teaser introductory rate because that rate will eventually expire. While many choose this option, and try to focus on paying off the balance before the introductory rate expires, most people continue to charge on the new card and wind up with more debt when the rate expires. And, new purchases may be charged an altogether different interest rate than the introductory rate – a fact often hidden in the fine print. Transferring your balance from your high-rate card to a low-rate card without a teaser introductory rate could be the solution to helping you pay down your debt. Not only will you be charged less interest each month, you also won’t need to worry about your rate shooting up after a certain period of time. GECU offers great credit card programs with rates lower than the industry average; there are no teaser rates, they are always this low. Plus, there is no charge to transfer balances. Click here for more information. Bad Habit #2: Not checking credit reports If you have credit cards, pull your credit report at least once a year and check it for errors. You are able to request your FREE credit report once every 12 months from each of the three major credit bureaus: Equifax, Experian, and TransUnion through: www.annualcreditreport.com. Purging your record of inaccuracies proves crucial for getting better interest rates, landing the job you desire, and stopping an identity thief from ruining your credit rating. Your credit report affects your credit score, which, in many cases, determines your interest rates on future loans. It’s essential to dispute anything you think should not be there; send a correction letter to each of the credit bureaus that shows the error or submit the dispute online to the bureaus. The Fair Credit Reporting Act allows for the correction or deletion of inaccurate, outdated, or unverifiable information, provided that a reinvestigation into the disputed data comes out in your favor. Be wary of so-called “credit repair clinics” who will charge you hundreds or thousands of dollars to fix your credit report. Anything you can legally do to repair it, you can legally do for free. Unfortunately, negative but truthful data must stay put. A Chapter 7 bankruptcy filing, for instance, will remain on your credit report for 10 years; a Chapter 13 will remain for 7 years. Bad Habit #3: Failing to alert creditors about a financial hardship You may be hearing rumors that layoffs are coming to your department next week. Don’t wait until it happens to worry about how to pay your bills. Or, you may realize you’re suddenly short on funds and are not sure if you’ll be able to make your next payments. Do some damage control right away. The best time to negotiate is before the problem spirals downhill. Call your creditors and explain the problem. Ask if they could temporarily lower your interest rate or extend your payment deadline. They may also be able to provide you advice about your situation or point you to a credit counselor who can help. Bad Habit #4: Thinking of “budget” as a dirty word The word may call to mind tedious self-trickery meant for those with low incomes, but everyone could benefit from deciding on certain amounts for spending and sticking to the amount no matter what. It also makes sense to budget for known future expenses, such as: insurance premiums, taxes, and rent. Not saving up in advance means you’ll have to charge expenses or cut into funds set aside for other necessities. It’s key to budget these fixed costs while you can handle small financial pinches. To find out what’s draining your finances, keep track of where your money goes for a month by using a budget worksheet. Doing this will reveal whether you’re spending too much on expenses you could trim, such as restaurant outings and shopping. Then you can consider alternatives without cutting out expenses that are essential. Bad Habit #5: Using retail store credit cards to take advantage of discounts Chances are, your store credit card carries a high interest rate you’ll be forced to deal with if you don’t pay off your balance each month. Plus, applying for a new credit card can affect your credit score – possibly deducting 10 to 30 points off your score. If you must charge your purchases, use your general purpose credit card. If you can’t pay off the balance, at least you’ll pay a lower interest rate. Limit the number of store credit cards you apply for – if any! Applying for these types of credit cards to save a percentage off your purchase could lower your credit score and could end up costing you more in interest in the end. Bad Habit #6: Procrastinating on creating an emergency fund Learn to save for financial emergencies. Even if you feel financially invincible, a single emergency room trip or car accident could force you to put large balances on credit cards, causing interest to accrue and more debt to pile-up. It’s recommended that you maintain an emergency fund of at least three to six months’ worth of living expenses and keep your insurance plans up to date – just in case something were to happen to one of your most expensive items, such as your car or house. Work toward that goal by putting away around 10 percent of your take-home pay each month in a savings account. If you receive a raise or bonus, add that money to your savings. Since you’re not used to having the extra cash flow, you probably won’t miss it. Bad Habit #7: Always charging purchases instead of paying in cash or with a debit card How many times have you charged services or merchandise when you had the money to pay with cash or debit? Insignificant purchases of $20 or $30 made several times over can quickly add up, particularly if you already carry a balance. Balances you can’t pay-off each month mean paying interest charges and subsequently, more money for items you could have bought outright, interest-free. Make a habit of paying for purchases under $50 with: cash, a debit card, or a check. Knowing the money has to clear the bank sooner could help you curb your spending habits. Just be sure to check your balance regularly to ensure you have enough funds. Bad Habit #8: Making credit payments late You may think, “It’s only a $39 late fee.” Besides wasting money you could have put toward the balance, a late payment that arrives at least 30 days past due can throw your account into default and up to triple your interest rate. Plus, if another credit card you have has a universal default clause buried in the terms and conditions, that creditor may start charging you a high default interest rate as well. It’s important, even if you’re not paying off the whole balance, to make a payment on time. On a calendar, mark upcoming paydays and payments that should come out of that paycheck. If you’re mailing payments, send them 7 to 10 business days in advance. If you’re afraid your payment might not arrive on time, call the creditor, explain the situation, and ask them to forgive the late fee. Better yet, sign-up for Online Banking and Web BillPay so you know your payments arrive on time. At GECU, we do not have a universal default clause on any of our credit cards. We have always kept our programs simple and easy-to-understand. We also make it easy to pay your GECU credit card bill online through our Online Banking. Bad Habit #9: Routinely making the minimum payment only Paying the minimum is better than paying nothing, but it doesn’t do much to pay-off most balances and forces you to keep paying interest. By letting interest build up on top of your principle balance, you are putting yourself at risk of losing any savings you have put away. If you can afford to pay
more, or in full, go ahead and pay as much of the balance as you can, within the
limitations of your budget. You never know when you’re going to have a tough
month. Pay in full each month you can to avoid interest charges altogether. Sources:
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