10 Red Flags for Credit Card Trouble

June 15, 2010

By Barbara Marquand | Money Rates Columnist

Credit card debt has a sneaky way of piling up when you're not paying attention. Little splurges beyond your budget here and there seem innocent, but--repeated often enough--add up to trouble over time.

The sooner you catch the trend, the easier it is to get out of debt. Here are 10 warning signs that you might be headed for trouble:

1. Too Many Credit Cards

Financial experts say most consumers need only a few credit cards, but a recent study by Experian found 14% of consumers have more than 10. The more accounts you have, the more difficult it is to keep track of due dates and balances.

2. Maxed-Out Credit Cards

You've been approved for your credit limit, so there's no harm in charging up to that limit, right? Wrong. Maxing out credit cards hurts your credit score and indicates to lenders that you're hard up for cash. Keep credit card balances to no more than 30% of your credit limits.

3. Using Credit Cards to Make Ends Meet

You're living beyond your means if you have to charge basic living expenses because you don't have enough cash. Evaluate your budget if you're charging rent, utilities and food with no plan on how to pay it off.

4. Relying on Cash Advances and Convenience Checks

Do a budget overhaul if you're relying on credit card cash advances to make ends meet. These transactions come with fees and carry higher interest rates than you pay on purchases. They also have no grace period, so interest starts accruing as soon as the ATM spits out the bills.

5. Paying Only the Minimum Due

Check out your credit card bill to see how shockingly long your debt will last if you pay only the minimum due. Card issuers must now include this payoff information in every monthly statement. By paying only the minimum, you're saddling yourself with debt for many years to come.

6. Opening Multiple New Credit Card Accounts

Get help from a reputable credit counseling agency if you find yourself filling out credit card applications because you've maxed out all your other cards and you need money.

7. Credit Card Secrecy

Hiding credit card spending from family members strains relationships as well as finances. Financial infidelity--lying to your spouse about spending--is a marriage breaker. Honesty is the best policy, advises the National Foundation for Credit Counseling.

8. Late Credit Card Payments

A late credit card payment stays on your credit reports for seven years and lowers your credit score. Call your credit card companies to negotiate if you're having trouble making minimum payments on time.

9. Moving Debt Around Instead of Paying It Off

You save money by transferring a high-interest balance to a zero-interest balance-transfer credit card--but only if you pay off the balance on the new credit card in a reasonable amount of time. Just moving debt around without a disciplined plan to pay it down doesn't do you much good.

10. Growing Credit Card Balances

You know you're spending beyond your means if your credit card balances are growing each month. Track your spending to find the money leaks and reverse the trend. (In Savings Rates Are Determined by Developing the Right Habits and Principles, MoneyRates expert Richard Barrington offers diagnostic questions to help you probe potential reasons behind overspending.)

Even financially savvy consumers can fall into bad credit card habits. Take a periodic reality check to make sure no red flags are popping up in your financial life.

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