As a bankruptcy attorney, it’s easy to have a poor opinion of credit cards. They are the most often cited overwhelming debt by bankruptcy petitioners. Yet there is a good way to use credit cards. It’s just that bad habits have a way of creeping in when no one is paying attention. The best way to use a credit card is sparingly and only for items or services that you both need and can comfortably afford to pay back within the same month.
Credit Cards Can be Convenient and Secure Payment Methods:
When used correctly, credit cards are quite convenient. They provide a secure payment alternative to cash and debit for everyday expenses. Many credit cards come with fraud or purchase protection so, unlike cash, if your credit card is lost or stolen, it can be replaced without significant financial loss. They can help you: a) build credit (necessary in this day and age), b) earn rewards (many credit cards come with advantageous rewards programs based on account longevity, and amounts purchased), or c) finance necessary purchases over months that would have caused financial strain if paid in one lump sum. The only problem is that unless you are incredibly cautious, credit cards will lead to high-interest charges, growing debt, and negative marks on your credit report.
How to Use Your Credit Card While Avoiding Unnecessary Debt:
- Pay Your Balance Not Your Payment: Plan to pay your balance each month by the due date rather than the minimum payment to avoid high-interest charges. Although if you are unable to make the full balance amount, make sure at least the minimum payment arrives by the stated due date.
- Buy What You Can Afford: Numerous studies have shown that people purchasing with credit cards tend to spend more than those purchasing with cash or debit. Make sure you only buy what you can afford and stick to your monthly budget even when wielding a credit card.
How to Use Your Credit Card Without Negatively Impacting Your Credit:
- Make Payments On Time: Your payment history is one of the main factors that influence your overall credit score. A late payment can both negatively impact your credit score and result in a late payment fee from the credit card company.
- Stay Below Your Credit Limit: To be clear, don’t just stay below your credit limit – stay far below your credit limit. The credit reporting agencies consider your credit utilization ratio (which is the ratio between the total balance you owe and the total credit limits on your credit cards) as a factor when determining your credit score. A low ratio of balance to credit limit has a favorable impact with a high ration having the opposite effect. It’s best to use less than 30% of your available credit.
Since so many families come to us burdened by overwhelming credit card debt and looking for relief through bankruptcy, it can be tempting to blame credit cards. Yet there are benefits available through credit cards – they require careful handling.
If you have questions about discharging credit card debt or want to discuss filing bankruptcy, please don’t hesitate to get in touch. Most bankruptcy offices in the Chattanooga area don’t have a single Consumer Bankruptcy Specialist on staff. Our office is the only one in Chattanooga with two. You are in good hands with Kenneth C. Rannick P.C.