Credit card debt makes a massive contribution to the overall personal debt burden. While credit cards are almost a necessity for certain purchases and a handy way to spread costs, temptation so often wins and people overstretch themselves. That's when things can get out of hand.
Can you trust yourself with a credit card? Are you sure you won't let your credit card debt get out of control? Have you overspent with your plastic in the past and are you concerned you might do the same thing again?
These are important questions you must ask yourself if you are considering applying for a card.
If you come to the conclusion you can't trust yourself, the best solution, or perhaps the only one, is to reject the idea of having a credit card altogether.
If you are sure you can handle a credit card without being irresponsible you should still follow a few basic rules to keep yourself in check.
First of all you must choose wisely. With thousands of different cards to choose from you have your work cut out. Be aware, though, that many of the best deals are found when you look beyond the high street and the more familiar names. The internet can be a valuable resource for comparison.
Once you've got your card there's no doubt that the smartest way to use it is to pay off whatever you've spent every month. You can then be sure that you're not spending more than you can afford and the interest won't be a problem.
Don't fall into the trap of simply paying the minimum amount because it will take an enormous amount of time to pay off your credit card debt this way. Missing payments is a definite no-no because then you'll have the penalty fees to worry about as well as the interest.
If you can't pay off the balance every month, it is more important than ever to make sure you are not paying a higher interest rate than you need to.
Take note of the multitude of credit cards that offer 0% interest for a limited period. The way around that limited period is to simply switch to another card offering an introductory 0% interest rate when that period ends, and repeat the process ad infinitum.
If you can't bothered with the hassle of this process, still be aware that you should assess the market regularly to make sure you are not paying more interest than is necessary.
While on the subject of interest, steer clear of store cards; these carry excessive interest rates unless you are prepared to settle them every month. If you must, take advantage of their money-off incentives but pay them off immediately.
Another golden rule is to inform the credit card company if you are having problems. The longer the problems continue, the bigger the credit card debt will get, so you have to find a solution.
Believe it or not, the credit card company will want you to find a solution too because they don't want to have to go through the courts to get their money back. So they will be open to suggestion regarding payment plans, etc.
It is always wise to enlist the help of a professional debt counsellor when negotiating with creditors. They will have the necessary experience and can sometimes get interest frozen.
By John Porter from United Kingdom
About The Author: John Porter is a senior debt counsellor at The Debt Counsellors, who provide free advice on credit card debt and all personal and business debt problems. Web: http://www.debtcounsellors.co.uk
http://money.cnn.com/pf/101/lessons/9/">http://money.cnn.com/pf/101/lessons/9/ ... actually, just go to the main site http://money.cnn.com and use it for great reference material. They have a great debt reduction calculator that if applied, will work wonders on your situation. Ditto to the person who said your taxes and penalties would probably be greater than the interest you would be paying. Also check out Home Equity Lines of Credit if it's applicable to your situation.
In the US, beware! The use of credit counselors is treated by your creditors as if it were a chapter 13 or some such.
Too much activity on your credit report will raise your rates. So getting serial cards may raise a red flag. Besides, you end up with a lot of credit cards, all of which have available balances. When you need a loan, this is taken into account.
The best bet is to have a debit card and, if you can handle it, one credit card for emergencies. A red dress is not an emergency, even in L.A.
The rule is:
Do not use a credit card if a bank wouldn't give you a loan for it. For example, don't charge usual monthly expenditures or budgeted purchases, such as food or clothing.
If you need help with credit problems, you will probably end up in bankruptcy anyway, in which case you will have no credit cards for many years, and a budget approved by the court.
So learn to budget, earn more money, and learn how to handle credit now, when you can control it.
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