These days, it is easier than ever to be approved for a credit card. Often times, credit card companies will even solicit people via e-mail and snail mail with pre-approval offers for credit cards. And while credit cards can work to one’s benefit and it can be tempting to accept these offers, the truth remains that credit card debt is a serious danger that should be avoided at all costs. The best way to go about doing this is to be as informed about this type of debt as possible and to understand and exercise responsible ways to use a credit card.
Dangers of Credit Card Debt
Credit card companies allow members to take out a line of credit that is often based on his or her income, previous credit score, employment history, and other factors. The credit line is the maximum amount of money that can be borrowed or charged to the card at one time. However, every member is also subjected to an APR or annual interest rate, which is the percentage of the credit taken out that the member is charged in interest per year.
Since the minimum payments for credit cards are typically just a fraction of the total balance, it is possible for credit card companies to make a killing in interest over time for those who do not pay off their balance in full by each due date. This is how people fall into debt; over time, small payments are made on the balance but the interest continues to accrue. This kind of a situation can spiral out of control and lead to collections calls, repossessions of belongings, and a severely damaged credit score for those who are not careful.
How to Avoid Credit Card Debt
Fortunately, avoiding credit card debt altogether is not as difficult as you might think. Furthermore, it is important to notice that credit cards, when used responsibly, can actually improve one’s credit. The key is knowing how much you can afford to spend on credit card bills each month and not taking out too many credit cards at once. Compare credit cards in Canada if you need to.
In general, it is a good idea to limit yourself to one credit card and decide on exactly what you will use it for and how much you can afford to pay off. For example, if your card offers rewards points or cash back, it may be smart for you to use the card explicitly to buy gas or groceries each month; this way, you can earn points back on money that you would be spending anyway.
Furthermore, you should always pay off the balance in full at the end of each billing cycle. This will ensure that you do not end up owing money in interest and that your credit score is not hurt. If an emergency arises and you cannot pay the full balance, pay as much as you can. Never miss a due date, as this can hurt your credit and cause your interest rate to rise as well.
Finally, be wise in selecting a credit card that is right for you. There are many different card types available out there these days. Some charge annual fees while others do not, and some have lower interest rates than others. Decide which features you are looking for in a credit card and do some research until you find one that closely meets those expectations.
As you can see, there are many steps you can take to avoid credit card debt and use your credit line to your advantage, so be sure to keep these tips in mind.