February 2013

10 Signs You're Misusing Credit Cards

Americans love to use credit cards. Whether it's for big ticket items like a flat screen television or luxury vacation or small purchases such as a cappuccino or movie ticket, consumers continue to use their credit cards at a dizzying pace as a means of increasing their buying power.

But the reckless use of credit cards can quickly lead to a mountain of debt which is seriously difficult to overcome. The typical American household has at least two credit cards. A study released in June of 2012 indicated that the average debt on these cards was over $15,000. If you pay only the minimum amount each month on these credit card bills it will take decades to fully pay off the outstanding balances. And that's assuming you stop using the cards for additional new purchases!

Here are some of the more common ways people misuse their credit cards. If any (or all) of these situations hit close to home, step back and honestly assess your personal financial position. Consider changing your spending habits to avoid getting into serious financial trouble.

Signs You're Headed For Serious Credit Card Debt

  • You use credit to pay for basic needs. Everyday items such as food, clothing and gas should be paid for with cash from your monthly income. Unless you fully pay off the charges each month, using a credit card for purchases such as these is a warning sign of cash-flow problems.
  • You try to ignore your credit card bills. Wishing won't make them go away. The longer you avoid your financial problems the worse they will become. Don't let overlimit fees and late charges add to your outstanding credit card debt. The sooner you face up to your credit card debt, the sooner you can begin to tackle it.
  • You pick and choose which credit card bill to pay. It's one thing to prioritize your credit card payments. But it's quite another to skip paying one or more of them. If you don't have the resources to pay all of your bills each month, you are already in over your head.
  • You continually transfer balances. Transferring a balance makes sense if you are getting a lower interest rate. But if you are constantly looking for a new card to transfer an old balance over to, this is a red flag.
  • You consistently charge more than you pay. The smart way to use credit cards is to only charge each month what you can fully pay off when the statement arrives. This means you are budgeting your money wisely, only making purchases which you can afford, and are not being charged any interest fees. When you charge more than you pay your balance will continue to increase. A word to the wise: "When you're in a hole, stop digging".
  • You have no plan to pay off your outstanding credit card debt. No matter how much you owe on credit cards, you should always have a plan to pay off your debt. If not, you will be paying for OLD DEBT for the next ten years or more. Plus, you will be paying hundreds or even thousands of dollars in interest charges, late fees, and overlimit fees- all for things you bought years before!
  • You have no emergency fund. Financial security is virtually impossible to achieve without some type of emergency fund. If you have to take on new credit (debt) every time a financial emergency happens (and they always happen at the worst possible time) you are headed for serious financial problems. Most experts suggest having at least $1000 in an emergency account to help you handle these situations.
  • You use your credit card for expensive purchases. The truth is, if you can't afford to pay cash for an item you probably shouldn't buy it. The problem with using a credit card for a big purchase is that it's easy just to think about the small monthly payment and not the actual price of the item. Your "expensive" purchase becomes even more costly when you add on months or years of interest charges. You would be better off saving for the thing you want and then buying it with cash. Trying to keep up with the Joneses can put you in a dangerous financial position.
  • Your credit card accounts are past due. If you currently have past due accounts, you are already having financial difficulties. The worst thing you can do is ignore the situation. Contact your credit card companies and work out a repayment plan if you can. Stop using your credit cards! Go over your monthly expenses and find ways to save money. Use the extra cash towards paying down your outstanding balances.
  • Your credit cards are maxed out. If this describes your current situation, you are already in credit card debt, not heading for it. Put away your cards, go over your budget, and start making wise choices about how you spend your hard-earned money. You can get out of overwhelming debt but it takes time, patience, and determination. Start today!