Everyone know that credit cards can be a double-edged sword. Credit cards are a wonderful convenience that make our lives (and our shopping) much easier. They can also be the source of tremendous debt if not handled properly.
Even the most conscientious credit card users can still find themselves in trouble by making the mistake of only paying minimum payments. Most credit card issuers seem to focus on the minimum payment amount in their credit card statements. However, making those minimum payments can have your overall debt steadily climbing out of control.
The Minimum Balance Error
The fact is, it is in your card issuer's interest that you make minimum payments. That's why the minimum payment due is stressed so prominently in your statement. If you make that minimal payment to keep your account in good standing with your issuer, you debt is not reduced.
The reality is actually quite to the contrary. If you are only making minimal payments on your credit card your debt is still accumulating interest, creating a potential financial nightmare. The amount you owe your issuer, just in interest, not in actual purchases, continues to rise. This leaves you owed a lot more on your purchases over time, profiting the issuer and hurting you.
Multiple Card Debt
Having multiple credit cards is not at all uncommon these days. What should you do if you find yourself getting farther and farther behind on payments on multiple cards? It may seem like the smart move to work on paying off the card that you owe the least on. However, this is not really in your best interest and can lead to a decreasing credit rating.
A large percentage of your credit score (about 30%) is calculated by your ratio between available credit and your amount of debt. This means that carrying a high balance on a credit card, even just a third of the way over your credit limit, can significantly impact your credit score in a negative way. Paying off that card with the higher balance as quickly as possible should be the first step in addressing your credit card debt.
As you focus on paying off the card with the higher balance, keep in mind the error of making only minimal payments on the other cards. Although you want to pay off the card with the higher debt as quickly as possible, you do not want to create another financial problem with your other card (s). Try to budget yourself to where you can make payments over the minimum, even if just a little while still paying down your high balance card as much as possible.
Staying Out of Debt
Once you get your credit card debt to a manageable level you can begin focusing on wiser use to prevent a recurrence of escalating debt. If you use multiple cards consider making one your primary card and keeping the other (paid off, of course) for emergencies only. Never spend on an anticipation of being able to pay it off when the statement arrives. View your credit card purchases just as you would your cash purchases. If you do not have the money, then do not spend it.