Why Should We Avoid Carrying Credit Card Balances
A credit card that should be used with the utmost discretion, but unfortunately has a tendency to be abused. People sign up for credit cards, see a sizable credit limit available to them, learn that they don’t have to pay it off in full right away, and suddenly get the notion that this is something they can use freely without any fear of consequence. However, credit card balances can take a significant toll on one’s finances. Here you will learn all about credit card balances and why to avoid them.
Why pay Credit Card Balances on time?
The primary reason to avoid credit card balances is that they’ll cost you in the long-run. Credit cards aren’t just something that allows you to buy something and then pay back for the same amount months or years later. All credit cards are going to have some interest accumulate on your balance after the grace period. So, let’s suppose you buy a $200 television. If you’re money smart, you’ll get your next credit card bill and see $200 for the television. If you only pay attention to the minimum amount due, you’ll find your credit card debt blooming. Meanwhile, that television becomes even more expensive.
It might seem unfair to you, but credit card companies are a business. They can’t just let people make purchases on the basis that they’ll pay them back eventually. Interest rates act as insurance. If you sign up for a card with a high-interest rate, it’s even more imperative you pay it off immediately. Credit card balances can make you despise your card after initially embracing it. To help pay down balances faster you can pay your bill twice before the due date. If this becomes difficult, think of using credit cards less. Many people build high credit scores simply by using a few of the best low usage credit cards.
The Pros of Using Credit Cards
Credit cards should not be avoided entirely, due to their positives. If used correctly, a person can manage their finances using credit cards. They’re also a primary means to establish good credit. If lenders see that you have a history of paying back money owed, they’ll view you favorably. However, carrying a balance can have a significant adverse effect. Your FICO credit score is a summary of how dependable of a borrower you are. Since credit card balances essentially say you don’t pay back money immediately, it’ll be harder to receive loans. It’s not as bad as having a maxed out card or missing payments, but it still has an effect.
Your credit utilization ratio is something that can significantly affect your credit score. This is a ratio which compares your balance with your line of credit. As a rule of thumb, the ratio should be 30 percent at most. Having a high credit utilization ratio can tell a bigger story than just your balance. Someone carrying an $800 balance on a $1,000 credit line is going to look worse than one with a $1,500 balance on a $10,000 credit line. A credit card demands responsibility, and getting carried away does you no favors. Whether it’s a high-interest rate card, overspending or a combination, credit card irresponsibility hits hard. To improve your credit utilization, you can consider asking for a raise to your credit limit.
Dealing High Credit Card Balances
With credit card debt, there’s only one thing to do: deal with it. Ignoring debt will only serve as a form of self-sabotage. Anyone who has had a missed payment can tell you about the penalties incurred. You might find that your debt is growing at a rate faster than you can handle. Fortunately for you, there are ways to handle this.
1. Curb spending
If you saw a fire spreading, you wouldn’t reach for a match. With credit card balances, you want to avoid adding to your credit card debt as much as possible. Focus on paying off your existing balance. If you absolutely must use your card, do so, but remember why you’re limiting usage.
2. Balance transfer
Credit card debt can’t be magically erased, but there are ways to ease the pain. One way is through a balance transfer. With this method, you can receive a lower interest loan or another card to transfer your balance. This credit transfer comes in handy if you have a high-interest rate on your credit card. Just make sure you pay attention to the terms of your new agreement and make payments on time. The Chase Slate® card is one of the most popular balance transfer credit cards offered today.
3. Pay more than the minimum
Think of paying off credit card balances like running a marathon. If you keep moving but go at a snail’s pace, you’ll reach the finish line, but not soon enough. Paying just the minimum keeps you afloat, but allows interest to accumulate. Set aside savings specifically for your debt, and set a realistic goal in the near future to eliminate it. Above all else avoid missing payments.
Lower Credit card balances Faster With a Balance Transfer Card
Credit card balances can hurt, and the pain grows if not treated. Whether it’s a high-interest rate card or a lack of foresight, you should deal with debt. Finally, look into a balance transfer, improving your credit utilization or whatever else it takes.