Practical credit card management advice

January 22, 2010  |   Posted in Credit Education, Credit Guy Blog   |   1 Comment    Tags: credit card debt, debt management

I’ve written about credit card debt several times in the past, but I figured today it would be nice to just consolidate things down to some practical, no nonsense advice on managing your credit cards.

• TAKE INVENTORY. How many credit cards do you have? What’s the balance and minimum monthly payment on each? What’s the total balance? If the total balance is higher than you can afford to pay off within two years, it’s time to step back and look at what you can do to reduce your overall credit card debt.

• NOT ALL CREDIT CARDS ARE THE SAME. What’s the interest rate on each card? Is there an annual fee? Does your card offer a grace period? You might be surprised to see how your credit cards differ. Are you getting the best deal possible?

• KEEP THE CARDS. After you’ve paid off the balance, keep the line of credit open. Typically speaking, closing credit card accounts isn’t always prudent. Lenders like to see available cash on your cards, also known as “room to buy.” If you have four unused credit cards with a total of $5,000 open on all of them, closing them may actually lower your credit score. You should also keep your oldest line of credit open because it lengthens your credit time line. That said, if the credit card company is charging some outrageous fees, like a non-usage fee, ditch it. AND, you have to control your spending. If you simply cannot resist the urge to run up more charges, close the account. A closed account will impact you less than high debt levels.

• GET ONE LOW-FEE OR LOWER-INTEREST CARD AND USE IT WISELY. Too many cards can equal too many shopping sprees and result in excessive debt. Transferring existing debt from your various credit cards to a new low-interest credit card can save you money on interest.

• MAKE THE LARGEST MONTHLY PAYMENT YOU CAN AFFORD. While it’s ideal to pay your balance in full each month, it’s not always possible. However, when you only pay the monthly minimum, you’re most likely paying the accrued interest only. Even if it’s only a few dollars, try to pay more than the monthly minimums.

• WATCH OUT FOR “TEASER” OFFERS. Your mailbox may be full of unsolicited credit card offers that promise low-interest rates or too-good-to-be-true rewards, but you need to read the fine print. You may find that after six months or so the issuer may double the low introductory rate or void your rewards program. When the rates go up, you may be paying a lot of money at a very high interest rate.

• ACT NOW. If you’re having trouble making your monthly payments, contact your creditors before they contact you. The worst thing you can do is ignore the problem hoping it will go away. Your creditors will be much more willing to work with you if you’re honest and make an effort to repay what you owe.