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Paying with plastic is easy, convenient, and probably more common than paying with cash in this day and age. But sometimes it is just too easy, and that inspires consumers to rack up the purchases on their credit cards. Then the bill comes at the end of the month, they cannot make the whole payment, so they roll over the balance to the next month. Meanwhile the urge to keep pulling that card out of the purse doesn’t diminish, and soon the whole process can catapult way out of control. The debt carries interest, and if the payments aren’t made in full or on time then the interest keeps adding up until you are paying interest on the interest. That’s a recipe for financial disaster, and the reason why many people get so stressed-out and buried in bills related to credit card use.
That doesn’t mean that you should cut up all your credit cards and swear off plastic for the rest of your life. Doing so might even make it next to impossible for you to do simple things like rent a car or book an online travel reservation because many merchants only accept credit card payments. Cutting up a card can also trigger a reaction at the credit reporting agencies and lower your credit score, so that when you apply for other loans you’ll pay higher interest or just get rejected completely.
The trick is to know how to manage that credit card use and reduce your credit card balances and debts by taking advantage of practical tips, innovative tools and strategies.
Let’s take a look at some tips and strategies for a debt free life:
- One of the first places to start is by understanding your credit baseline – which is summed up in your credit report and FICO score.
- The reason to go there before doing anything else is because if there are mistakes in your report you should protest them and try to have them taken out and corrected.
- But the process of cleaning up a credit report can sometimes takes3-4 months, so this is a task to start immediately.
- To order your free credit report as you are entitled to do one per year under federal law, just go to www.annualcreditreport.com.
- You can also contact any credit reporting agency and request a copy of your credit report and credit score. Your credit score will help you know what range you fall into, in terms of poor, fair, good, or excellent credit – and that info helps you know which cards you’re eligible to get.
- They will usually charge you a fee of around $15-$20 to do so, but if you want to keep tabs on your credit file and also monitor what’s being said about you throughout the year then the cost of access is probably a good investment in your credit-building strategy.
Meanwhile, based on your current credit score, you can shop around for the right credit card. Here are some pointers on choosing the right credit card to help you build credit and budget your finances:
- As usual, try to pick credit cards with the lowest APR and fewest fees and charges. A low interest rate card with no annual fee, for example, is great. Get one of those that also offers you a rewards program or cash back incentives and you’re going to have a fantastic card.
- But to get the best cards you need the best credit history. If your credit is bad, you should start with a credit card tailored to people like yourself who have some credit problems but want to get a card and then establish good credit.
- Those will include lots of options for prepaid cards, and if you sign up for a prepaid card try to get one that also offers you a package or menu of special features to help with budgeting and managing money.
- Many companies offer free online service features, for example, to make it easier to pay bills on time – and they also report regularly to major credit scoring agencies.
No matter what kind of card you get – or how good or bad your credit may be – there are always certain strategies and techniques that you can follow to ensure that you properly manage your credit credit. Here are a few ideas to keep in mind:
- If you are offered credit, try not to max it out – or come even close to using all of it. Doing so looks good on your credit history. Experts recommend not using more than 30% of available credit at any one time.
- So if your card account’s available credit for purchases is $1,000 you should not charge more than about $300 to your card. That demonstrates that you can handle having credit without going overboard – and banks love to see that.
- Don’t apply for new credit cards unless you really need them and know exactly which one you want and that your chances of getting approved are high. Frequent applications make you look desperate, and that can hurt your overall credit score.
- Pay off your balance each month. This saves you tons of money because you don’t have to pay interest to essentially borrow money from your card company, and it also does wonders to raise your credit score and give you control of your budget.
- If you do carry a balance, get a card that offers you online budgeting tools to help you calculate the fastest and most affordable method for paying it off.
You can also use the free reviews, calculators, and other budgeting tools and how-to articles found on this site to help you with all of that.
To learn more about reducing your credit card debt and managing credit card budgets you may also want to browse through the articles and others online tools and “how-to resources at these sites: