You can make credit cards work to your advantage. See, it isn't the credit cards that are really damaging (though they try), it is actually the way you manage your credit card usage.
There are people out there that use credit cards to their benefit. For example, my husband uses his as a way to track all of his work-related spending and keep it all organized in one place -- away from the family finances. But, he keeps track of the spending and pays it all off at the end of each month. When you carry no balance, you pay no interest. His credit card costs him nothing, but helps him to organize his finances.
However, very few people are able to discipline themselves in this way. Studies show that people spend anywhere between 12% and 34% more money when using credit cards than shopping with cash. Most people are charging more than they can afford, even before considering the interest charges over the years.
Borrowing on a credit card can be quite costly if you carry the balance as debt. The interest rate is quite high. And the higher the rate, the longer it will take you to pay the debt back.
However, you can reduce your interest rate and avoid paying quite so much. This is extremely helpful when working to eliminate your credit card debt.
Start by transferring your credit card balances to cards with low or 0% intro interest rates. Many credit card issuers offer low intro rates in order to entice you over to their side. Most intro rates only last 6 months to a year, however some cards are fixing interest rates at 3.99% for the life of the balance transferred.
If you are in good credit standing and have a good payment history with your credit card issuer, you can call and request a lowered interest rate. You will be surprised at how easy it actually is to get a lower interest rate. Most companies will work to keep you as a customer, especially if you have been a good customer over the years.
The single way to make credit cards work against you is to pay only the minimum monthly payment. It will take you forever to pay off your debt this way. Pay as much as you can towards your credit cards each month. The snowball method of debt repayment is very effective at eliminating debt. It can save you thousands of dollars and years of debt repayment.
Store credit cards are just not worth it. The interest rates are much higher than with traditional credit cards. You are better off transferring your balance to a lower rate card. The one exception is home improvement stores that offer 0% interest for the first year on big ticket items. However, you must be disciplined enough to pay it off before that year is up. Otherwise, it could take you five, ten or fifteen years to pay off one appliance.
The one thing that can take manageable debt to a disaster is making a late payment. Late payment fees are usually around $35 for each late payment. In addition to this, your interest rate will increase to the default rate in your credit card agreement. Many cards today are hitting late paying customers with interest rates of 30% or more. And once you miss a payment on one card, all of your cards are likely to raise rates on you.
