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5 tips for keeping credit card balances low

November 10, 2010

By Barbara Marquand | Money Rates Columnist

Keeping your credit card balances low is good for obvious reasons -- the lower your balance, the less you pay in monthly interest, and the easier it is to pay off your debt.

In addition, keeping balances low is also good for your ability to secure credit at decent interest rates. Your credit utilization ratio -- the percentage of credit you use compared to the amount you have available to you -- counts for almost a third of your credit score. Maxing out credit cards or spending close to the credit limits makes you look risky to lenders. Financial experts advise keeping credit card balances below 30 percent of your credit limits, even if you pay off your accounts in full each month.

Here are 5 tips for keeping your balances low:

1. Get credit card transaction alerts

Sign up with your credit card company to receive free alerts via e-mail or text messaging whenever your balance reaches a critical threshold. Designed to help you detect unauthorized charges quickly to nip fraud in the bud, transaction alerts also help you track spending to stay within a budget.

2. Use text banking for your credit card

Many financial institutions now offer text banking, which you can use to keep track of 0 APR credit card as well as your checking and savings accounts. Text banking gives you the ability to retrieve basic information about your accounts with your cell phone so you can keep track on the go.

Citibank credit card holders, for instance, get on-demand updates simply by texting a short command to MYCITI (692484). In seconds, they receive a text message with the account information they requested, such as a balance total on a credit card.

3. Track your credit card balance online

Sign up with your credit card company to view your statements online. Check your account status each week to track your spending and keep your balance in check.

4. Plan your credit card use

Small impulse purchases add up quickly. Plan ahead of time how you will use credit cards with low apr and stick with your plan. Perhaps you might want to use it only for getting gas, buying large, budgeted purchases or for paying a particular bill each month. Whatever you decide, stay on plan and leave your credit cards at home when you go window shopping.

5. Pinpoint the cause of growing credit card balances

Is your balance growing because of impulse purchases or are you using your credit cards each month to pay for basic living expenses because you have no cash? If it's the latter, review your budget to see where you can cut back to make ends meet.

Feel like you're about to drown in credit card debt? Get referrals to a reputable credit counselor from the National Foundation for Credit Counseling. Stay away from services that focus on debt settlement, and find one that provides free or low-cost help with budgeting and saving.

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