Credit cards can be very useful in times of emergencies and when building credit. But, what happens when the interest starts to pile up and reality kicks in and you start to realize that it will take close to a decade to pay off a $500 purchase?
Of course, there are times when we can’t simply pay the full balance on credit cards each month. Maybe not even more than the minimum. We’ve all been there. You might start searching for options when you get stuck and sometimes it seems that opening new accounts might really benefit you and your credit.
Balance transfers are an ideal way to consolidate debt and try to lower your monthly payments. Sometimes you’ll find a higher interest rate for balance transfers. Other times you may see the special introductory rates of 0% interest and that might be enough for you to jump at that offer! Be warned, if you don’t read every word on that annoying little pamphlet that comes with your offer or with your card, you may be in for a rude awakening if something happens down the road. That jaw-dropping 0% introductory rate may only be good for 12 months and it may also only be good for that specific balance transfer. (Don’t start making purchases with that card thinking you don’t have to worry about interest!) Some credit cards will stop the 0% rate if you miss a payment or you are late with a payment. One of the tricks I’ve found when I was lured in for a 0% interest rate was most of the time, these cards will add their regular interest rate at the end of the 12 months if you haven’t paid the balance off yet. (Sometimes you’ll find that they will also add the interest that would have been there from day 1.)
The most important thing to do is to read every tiny line. There are a lot of hidden rules inside those tiny print contracts. You don’t want to have to be even more surprised later down the road. Especially if you were in a bad spot and used this to save yourself only to find that it will end up making things worse.
A credit card interest calculator is a very handy tool to have! Whether you just want to check on random amounts and how much you would pay if you buy a new stereo, use your card for vacation, or just use it for regular everyday purchases, this can be very eye opening.
If you are in a position where you can afford double the minimum payment or even just an additional $20 on the minimum payment due, take advantage of that! It may seem small but you’re saving yourself months and even years of payments and quite a bit of money.
If you look at your statements each month to see what you were charged for interest and deduct that from your minimum amount due, you might be in for a shocker! Buying that game console may have seemed like a fun idea but when you realize that you will end up paying (in some cases) 3 times that amount, you might try to find another way to earn enough money to make that same purchase with cash.
Just a few more things to keep an eye on when jumping into credit cards and finding yourself swimming in debt:
Rewards cards are only really worth it if you can commit to paying your full balance off each month. (This is a great way to entice people to apply for credit cards but you could end up paying much more in the long run.)
Be sure to check the fees that are included with your credit card. There may be annual fees, late fees, and even administrative fees.
Check and recheck the interest rate and be sure you understand the rates and how they could fluctuate depending on your payments and usage of that card.
Check your credit report periodically and take note of the effects of these cards on your credit.
If you find yourself stuck and you feel overwhelmed or you need some help, it’s always best to check with professionals to evaluate your options and how you can take control of your future. Nationwide Debt Reduction Services could help you catch up and breathe much easier!
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