When Credit is on the Line, Play Your Cards Right



October 6, 2017

As convenient and commonplace as credit cards have become, there are some basic guidelines to follow in order to keep your family’s funds flourishing. Using credit without caution can fold your financial plans like a house of cards.

Pay More Than the Minimum

Kids often look at credit cards as free money, and, as adults, it’s surprisingly easy to forget that credit is simply a loan that comes due at the end of the month. And while it’s convenient, it can get very expensive if you are paying interest on the balance.

Paying your balance in full each month will keep your interest rates at bay and your budget in line. But, if you’ve fallen behind and you are carrying a balance, whenever possible, try to pay more than the minimum payment owed. This will help pay off the balance faster and save on finance charges.

Don’t Be Late

Pay on time, every time. It’s a simple formula: use the credit, pay the card balance, repeat.  Late payments to some credit cards can result in a higher annual percentage rate. And if the payment is more than 30 days late, it will likely damage your credit score, too.

Want a credit card that won’t hike your rates for paying late and gives you cash back on purchases? ECCU has a popular credit card option.

Limit Yourself

Hitting your credit limit is one thing, but crashing right through the limit can seriously damage your credit score.

Learn more about protecting your credit score.

And once your score takes a hit, so does your future borrowing potential. Credit reporting agencies cast a sharp eye on your exceeding a credit limit, because it indicates that you may be a higher credit risk, thus deserving a lower credit rating, according to Ethan Dornhelm, senior principal scientist at popular credit scoring model FICO, as he discussed in a USA Today article. Read the entire story.

Explore more tips for using your credit cards responsibly.


When to Hold ‘Em

If you're having trouble controlling your spending, or If you can't pay your monthly balance in full and the outstanding balance is growing, you may have a credit card spending problem.

If you find yourself in this situation, here’s a few tips to get back on track: Stop using your credit card until you get your finances under control.

  • Examine your budget with your family to see where you can reduce spending
  • Request a lower spending limit from your credit card issuer
  • If you need money for unexpected expenses, consider other alternatives to credit cards, such as  asking extended family or opening a line of credit.

By the way, canceling your credit cards is not always the best solution for protecting your credit score. Learn why you may want to keep your cards open.


Don’t Finance a Cash Advance

Avoid taking a cash advance on your credit card.  Unlike regular purchases, you will likely face a statement fraught with fees, much higher interest rates (sometimes double), and no grace period. Typically, you are charged interest from the day you take the advance until the day you repay the entire advance amount.  Any of these can quickly lead to a deepening hole of debt that’s difficult to defeat. In short, think twice before taking that advance.

Remember that credit cards can be a great way to track spending, rake in some travel rewards and avoid carrying cash, but they can also be a fast track to financial trouble if not used with caution

Start training your kids early about using credit wisely.

Category: Common Cents