Four reasons not to rack up credit card debt
Image Source: Flickr User Jukka Zitting
Using credit cards is a fact of life for many people – they don’t think twice about swiping plastic for necessities, luxuries, or when they run short and cash for any reason. But in some cases, credit card use can spiral out of control and become burdensome for the consumer. Here’s a look at four reasons why you should get rid of your credit card debt.
#1 It can wreck your credit score
Even if you are making regular and on-time credit card payments, overuse of your cards can still wreck your credit score. Using more than 30% of your total available credit will cause a dip in your score. And even keeping small balances across multiple cards can tank your score. The FICO score calculation is complex and takes into account a number of factors including these and more. Plus, if you’re maxed out, that dings your score – and if you’re late on payments, that’s even worse.
#2 It comes with high interest
Credit card debt usually comes at high-interest rates compared to other consumer debt like a car loan or mortgage. Making only minimum payments can cause your balances to remain unchanged if the payment only covers the interest and none towards the principal debt. This means you can spend a decade (or more) trying to pay off credit cards. And cash advances on credit cards come at even greater interest rates. These should definitely be avoided.
#3 It isn’t tax deductible and comes with little benefits
Some interest is tax deductible, like mortgage interest or student loan interest. But credit card interest is not something that can reduce your tax burden. And if you’re using credit cards to try and take advantage of rewards programs like frequent flyer miles, when all is said and done, you may be paying more in interest than you get from the rewards if you don’t pay your balances off in full each month. This can make credit cards far less rewarding than you may assume.
#4 It can get out of control fast
Credit card debt can spiral out of control quickly if you’re not careful. If you max out your cards and pay only minimums, your balances will climb. From there, if you miss a payment, you can find you’re hit with late fees and over-limit fees that can compound to make it impossible to pay off your credit cards. This is a trap that many consumers fall into and then find they can’t get out of easily. Swiping a credit card for something you can’t afford to pay cash for is a trap in many cases.
Credit cards can be a great way to build up a positive credit score, but if not utilized properly, can ruin your finances. Odd as it may seem, one of the best ways to use credit cards is not to use them. Carrying a very low or no balance and using the cards only often enough to keep them active can be a sound strategy to protect your credit score and your budget.
And if you do get in over your head with credit card debt, you can’t pay your payments (or can only pay minimums), are living paycheck to paycheck, and being harassed by debt collectors, bankruptcy may be a good solution. Chapter 7 bankruptcy wipes out credit card debt and other unsecured obligations while Chapter 13 bankruptcy grants you time to catch up on past-due payments and also discharges some unsecured debts.
To find out more about how North Carolina bankruptcy can get you out from under a mountain of credit card debt you can’t afford, contact the Law Offices of John T. Orcutt. Call +1-919-646-2654 now for a free consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.