Credit cards have become a way of life and provide both convenience and security to millions of Americans. Purchases can be made easily, unexpected expenses can be covered without worry, and your life can continue without too much financial strain if you have a temporary job loss. A credit card allows for necessary expenditures through manageable payments. Unfortunately, too many people become comfortable with the convenience credit cards offer, and the access to extra money can quickly get out of hand. Due to high-interest rates, many consumers rapidly – and sometimes quite unexpectedly – find themselves in debt they cannot handle.
The fact is that a credit card can be an excellent financial tool when used with care. Credit cards are one of the best ways to build credit that can save you thousands through lower interest rates when applying for a home or car loan. Many consumers also enjoy the diverse credit card rewards available, from free travel points to cash back. But once a user starts using credit cards irresponsibly, it might be better to get rid of them before they get into financial trouble.
3 Red Flags Regarding Credit Cards
Using credit cards responsibly means that consumers can pay off the balances each month. However, it may not be possible to pay off the balance in 30 days after an emergency expenditure. Still, users should be honest about their behavior and decide whether to put the credit cards away.
Here are three red flags that may indicate your credit cards are doing more harm than good in your overall financial situation.
1. Balances are carried regularly: One of the most damaging behaviors associated with credit cards is maintaining a permanent balance. The relatively high-interest rate attached to a credit card can grow balances quickly, and even great rewards may not offset those increases. If a consumer cannot pay off their cards and consistently carry a balance – it may indicate that it’s time to put the cards away.
2. The rewards are the reason: Credit cards should only be used for budgeted purchases and unavoidable emergencies. However, many people begin to use credit cards in additional circumstances to rack up their rewards. As discussed, these rewards rarely outpace the extra fees associated with the high-interest rates, so this is a dangerous game. Any credit card user that finds themselves making unnecessary purchases “for the rewards” may find themselves carrying a balance and getting in too deep.
3. The cardholder can never seem to get ahead: Those facing financial trouble typically notice that their balances never seem to go down, and they can never get out from under the payments. Card users who promise themselves that they will get out from under the debt next month – every month – may need to commit to cutting up the cards. Unfortunately, it becomes too easy to begin making minimum payments and allow the balance to ride, costing thousands of dollars in interest and fees. Those cardholders who only make minimum payments each month are in over their head and should consider getting rid of the cards altogether.
Credit cards have their place in a sound financial strategy, and the rewards can be attractive. Pay off the balances each month, and you’ll enjoy all of the benefits that credit cards have to offer.
Richard V. Ellis is an experienced personal bankruptcy attorney based in Sarasota, Florida. If you are in need of a fresh financial start, call today to learn more about your options.