The problem with credit card debt is not that we use credit cards, it’s that we don’t understand credit cards. Credit cards are unsecured credit…
This means that if the bank gives you a credit card there’s nothing they can come after if you don’t pay up. When you get a mortgage on a home they say “okay you didn’t pay your mortgage so we’re taking your home back” or if you have an auto loan and you don’t make your payment they come and take your auto back.
So, what does the bank do to feel better about the fact that they’ve given you unsecured credit? First, they give you an interest rate which can range from a 0% introductory rate all the way up to usually 14% or 15%.
Whatever your credit score is, that is going to determine your interest rate.
Secondly, don’t be late with your credit card payments, if you absolutely must, have the auto debit come out always on the due date, so that you’re always on time. And then during the course of the month pay it down even more.
You pay the minimum payment by auto debit and then you go ahead mid-month and make a bigger payment so you will pay down your credit card faster.
Thirdly, if you have a credit card that’s paid in full please don’t close it… keep that credit card open and put it away. Your credit score looks at how much credit is available to you and how much you have used.
It’s also very important to keep in mind that promo interest rates last a very short time. You might know these as introductory rates. What this basically means is this: we’re going to get you into our web with this incredible rate. However the little fine print says you might get screwed over and end up at 28.99% if you make one mistake, so it’s very important you don’t make mistakes.
It’s also important you educate yourself on compounding interests.
So make sure you read the fine print and understand the deals that you are signing with your creditor.