Using Credit Cards Wisely

By Mary Beth Storjohann

Did you know that the average adult in the U.S. carries $5,596 in consumer debt?

That fact alone might account for the bad rap of credit cards. Careless use of credit can wreak havoc on your finances in a variety of ways.

You might rack up a mountain of debt you’ll need years to pay off. You might end up paying thousands in interest to the detriment of your other financial goals. Your credit score might get hammered, hurting your chances to qualify for a mortgage or a car loan.

But credit cards aren’t inherently bad. Using a card doesn’t guarantee you a sluice run into deep consumer debt. Learn about credit and how your plastic works before racking up charges.

First, treat your credit card like a debit card, which draws money directly from your checking or savings bank account. Don’t charge more than you can afford, no matter your credit limit. Be mindful of the size of your bank account so you don’t end the billing period unable to afford to pay your balance, which you want to pay off regularly.

Keep your balance low. A credit limit of $5,000 doesn’t mean you ought to have a $4,500 balance at the end of the month, even if you can afford it. Your debt affects your credit score: Max out your cards and your score may suffer.

Make timely payments or you can incur a late fee, interest rates of up to nearly a third of what you owe, and ding your credit.

Late fees apply if you fail to make a payment within a certain time. If you previously paid on time the card company may (or may not) waive this fee. The Credit Card Act of 2009 caps late fees at $25 for first-time offenders and $35 for frequent offenders.

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