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4 signs you need to cut credit card spending

February 04, 2011

By Barbara Marquand | Money Rates Columnist

Although most Americans agree credit cards tempt people to spend beyond their means, many apparently view credit card spending as someone else's problem.

According to a recent Rasmussen Reports national telephone survey of 1,000 adults, 83 percent believe credit cards entice people to buy things they can't afford, and 81 percent say most Americans need to cut back on how much they rely on credit cards and other borrowing.

However, only 36 percent of those with at least one credit card think they need to cut back themselves; most--58 percent--don't see the need to apply restraint to their own credit card spending. Perhaps it's easier to spot poor spending habits in others than it is in oneself.

Here are 4 signs you might need to cut back on credit card use:

1. One or more late credit card payments

Late payments may signal low cash flow from spending beyond your means or simply poor organizational skills. Whatever the cause, address the problem before it sinks you deeper in financial trouble. Late payments cost you big time in fees, and, if you're really behind, in penalty interest rates.

Under federal regulations, credit card issuers can't increase interest rates on existing balances unless you're 60 days late. The penalty interest rate depends on the credit agreement, but in many cases penalty credit card rates are 30 percent or more. Ouch! Late payments also are reported to credit bureaus, which ding your credit score, and hurt chances of qualifying for decent rates on car loans and mortgages.

2. Paying only the minimum due

The minimum due each month is a tiny percentage of the credit card balance. Cut back on spending if that's all you can pay, and strive to pay as much beyond the minimum as possible to save on interest. Under federal regulations, credit card statements must spell out how long it would take to pay off the balance if you paid just the minimum due each month. Review that information for a reality check.

3. Your credit card bill is a shocker

You should have a good idea of your credit card balance as you go through the month. If the size of the bill comes as an unpleasant surprise each month, evaluate all your purchases. How many were made on impulse? How many of those items did you really need? Then plan how to avoid overspending, and keep track of purchases by checking your account online or writing them down.

4. Using credit cards because you're out of cash

It's time for a budget overhaul if you must rely on credit cards to purchase necessities or get cash. Cash advances on credit cards come with a higher interest rate than for purchases, and they do not have grace period. As soon as the ATM spits out the bills, interest starts accruing.

Seek help from a reputable non-profit credit counseling service if you're in too deep and don't know how to get out of credit card trouble. Reputable credit counselors offer many free and low-cost services and help with budgeting and savings. Avoid counseling services that focus on debt settlement and charge large fees.

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