8 Signs You Need Help With Credit Cards
Learn the signs you're in trouble, so your plastic remains a wonderful financial tool and not a ticking debt bomb.
I'll just put it on my card... Sound familiar?
Interest rates. Maxed out cards. Balance transfers. Late fees. Like extra pounds, debt seems to collect when you're not looking.
Credit cards are a handy tool for paying off unexpected bills or buying some goods online. However, when you get stuck in a cycle of credit card debt, it's all pain and no gain.
We've all grown used to the swipe of a credit card or the tap of a chip. It's no wonder that the average American household owes $16,000 in credit card debt.
For those that know how to use a credit card correctly, they get "free money", rewards and perks. But for those that don't, the cost of incorrectly using a credit card gets devastatingly expensive.
That's because we're getting hammered by high credit card fees.
If your personal credit card balance for the month is $5,700, which is what the average individual American holds, and you don't pay off that card, you will be charged nearly $1,000 in interest alone!
That is scary.
Carrying all this debt negatively affects your credit score, the all-important number that determines how much interest you'll pay on any type of loan and whether you'll get the worst or best credit card offers.
Seeking debt help is wise, responsible, and a courageous move.
Your credit card should help you, rather than cost you your financial freedom!
The good news is that there are helpful clues to let you know if you're correctly using your credit card, or if you need help.
Simply knowing what signs to look out for when using a credit card can turn you into a person who gets the best offers. You work too hard to let your money go to waste.
Here are the 8 signs you need help with credit cards.
If you're on this list, you can start helping yourself, and your wallet, today.
1. You don't know how much you owe
Quick! Without checking statements, how much debt do you have right now?
If you have no idea how much debt you owe right now, there's a good chance you have no idea how you're going to get out of debt either. Failing to know how much you have spent on your card is a sign you are headed for trouble.
Why? Because it's always more than you think.
According to the New York Federal Reserve, consumers owe 40% more than what they report, and the numbers are rising.
You may think it is easier to bury your head in the sand, but it's time to face the reality of your balance head on, or you risk slipping further into debt.
It's easy to know your balance. Here's how:
- Your credit card billing statement will have the balance on it. It will also tell you where to look online, so you can keep track of it daily.
- You can check online (often on the back of your card)
- You can download your bank's app (search iTunes or Google Play)
- You can call your lenders (flip over the back of your card)
Knowing what you owe will reap benefits instantly, you will:
- save money in fees associated with late payments
- be able to construct a payment plan to pay off this credit card debt i.e. you can't come up with a solution until you know the problem.
Don't give the banks and credit card companies more of your money. It's easy to know how much you owe if you want to look (and you should).
If you can't rattle off how much you owe on your credit card(s), then red flags should be popping up. The debt isn't going to go away simply by ignoring it.
2. You only pay the minimum
Paying the minimum is keeping you in debt.
Paying the minimum amount each month makes it look like the debt is affordable. But because interest is constantly adding up, the debt could actually increase if you only pay the minimum.
While it might seem like the only option, it is costing you, and it is costing you big time.
Grayson, of Debt Roundup, found himself head-over-feet with $50,000 in credit card debt. When he realized he was only able to pay the minimum, his first step was to stop spending.
By simply taking his lunch to work, Grayson was able to save $125 a month, which went straight to credit card balances. He found that simple ways to save shaved off two years of time he would have had to pay if only paid the minimum.
Let's say your credit card balance is $10,000 at 19.99% interest rate, with a monthly minimum of $200. It would take you 109 months, to pay off your initial balance. That's 9 years!
You will have paid over $11,000 in interest. That's MORE money in fees than what you actually bought with your card in the first place!
And that's assuming you don't buy anything else with that card.
Increasing your payments from $200 to $600 a month would save you $9,200 and take less than two years to pay off.
It's easy to calculate in three easy steps roughly what it will take to pay off your card in one year.
- Take the current balance.
- Multiple by your credit card interest rate. Let's take the average, 16%, for example
- Divide that number by 12=
That's how much you'll need to put toward paying off your card each month if you wanted to get to zero in one year.
Want to see how bad it can be?
- Take the current balance.
- Multiply it by 16%, for example.
- Divide it by the minimum amount your billing statement says you need to pay that month.
The number you're looking at now is the number of months required to pay off your balance if you only paid the minimum.
You end up paying more on the interest than what you bought on the card!
But what if you don't have more money to put towards your payments?
Here are a few easy ways to save money that add up in the long run:
Take your lunch to work
Make coffee at home
Stream movies instead of going to the theater
Ride your bike to work instead of Uber
Pay more than the minimum. Even if you only pay a small amount a month on top of your minimum payments it can make a huge difference.
Or if you can, pay off the full balance. It won't hurt your credit score if you're worried.
3. You're totally maxed out
Maxing out your credit card can happen. Sometimes we need money that we don't have. While it would be easy to take a hard line and say that maxing out your credit card is never, ever a good idea, sometimes that's just not true. Newcomers to credit cards often have no choice but to max out if they have low spending limits or true emergencies like vehicle repair or medical expenses.
But unfortunately, many of us max out our cards by simply not paying off the balance along with overspending.
Regardless of how you got there, should you find yourself totally maxed out — especially, with more than one card — you are in dire need of a repayment plan immediately, especially if you withdrew cash off your card, which comes with a very high-interest rate.
While you hold on to that worthless card, here's what is happening once you've hit your maximum line of credit:
- Your credit score is plummeting
- You're getting the wrong kind of attention by banks and lenders
- You're at risk of getting hit with fees for going over the credit limit
- You may end up paying a higher rate of interest since you're maxed out
- The minimum payment you have to contribute each month are higher
- Again, the card is worthless. It's pure debt.
"One of the biggest problems with maxing out credit lines it that once you do, the credit line has no practical value to you," writes Glen Craig of Free From Broke. "The maxed-out credit line becomes a pure liability--with its attendant monthly payment--that gives you no benefit at all."
Translation: Not only are you without any credit, but you also owe money.
With a maxed-out card, you'll be paying a fortune in interest fees, assuming you can't pay off the balance, and you risk losing access to alternative credit i.e. like another card in the future.
Should you find yourself maxed out on your credit card(s), here's what you can do:
Make a payment more than the minimum. Link your checking account to your credit card account. Set up a monthly auto deduction, or bimonthly if you want to be aggressive with squishing your debt.
If you only have one credit card that is maxed out, transfer your balance to a 0% APR financing card. Some even offer balance transfer promotions with no fees. Use the grace period of 0% to aggressively pay off the original debt. Don't accumulate more.
Do you have multiple lines maxed out? Start by paying the lowest first, moving your way to your largest debt. This is called the snowball method.
Switch over to debit cards, where you can only spend what you earn.
Sure, unexpected events can mean we need quick access to credit. But if you're maxed out on one or all, it's a glaring sign that you need help with credit cards.
4. You're often late with payments
One of the most important rules of credit cards is to be on-time with payments.
Failing to pay your credit card bills on time can hurt you in more ways that one. First, you'll have to deal with those pesky $35 late payment fees for missing the minimum payment deadline. But did you know that if you're late for 30 days or more, your account will be reported to credit bureaus? After all, 35% of your credit score is made up of payments.
And that's a sure-fire way to damage your credit score!
According to Financial Samurai, depending on your creditworthiness, your credit score could drop anywhere from 60-110 points!
"Going from a 720-600 means car loans will likely be 2-3% higher than optimal," writes Financial Samurai. "Your mortgage rate will also be at least 1.5% higher than the best rate which adds up to huge increased payments."
Instead of stressing out over consistently late payments why not set yourself up for success?!
Some helpful ways to pay your credit card balance on time include:
- On your card website, select options that enable you to pay the minimum balance on your card each month (or more!)
- Create repeat calendar appointments reminding you of your upcoming credit card payments a few days before the bill is owed. You don't want to be hit with any overdraft fees on your checking account, for example.
- Use phone alarms as a reminder of your billing due dates.
If you only have one late fee, and you're paying off your balance, you can call your card issuer and sweetly ask to have the late payment penalty fee removed. (Don't hesitate to grovel!)
But if you have more than one late fee, it's a clear sign that your wallet and your credit score need help. Make a plan to pay early each month and avoid the stress of being late.
5. Your credit score is dropping
First, it's great that you're paying attention to your credit score. Too many of us don't.
If you've determined your credit score is dropping, it is likely because of poor credit management, which weighs heavily in formulating your credit score.
Reasons your score is dropping related to your credit cards include:
- Late payments
- Missed payments
- Close to or maxed out cards
- Applying for multiple credit cards or loans at once
- Mistaken info. applied to your account
When you find your score dropping, it's important to request a credit report (it's free!). It will tell you your score and give you a history of your credit usage. You can request a free credit report at Creditloan.
Sometimes our credit reports show errors or mistakes, these can be anything from late payment marks to outstanding student loans. Simply correcting these mistakes can raise your credit score.
Also, just by requesting an annual credit report, and checking your score regularly, you will increase your chance of maintaining good creditworthiness - because you know what is affecting your score rather than wondering about and reacting to problems.
Should you find a problem on your credit report like a late or missed payment, you should reach out to your card issuer to see whether they can help.
Often, a sweet and polite phone call, as long as you're not a repeat offender, can work wonders in knocking off a late fee or missed payment, especially, if you pay off a large portion of the balance in advance.
If no problems on the report exist, then it is time to face up to the likely scenario that you may be missing payments, are late with payments, and/or owe a large balance on your card. This is likely what is driving down your credit score.
Take steps to fix these problems. We've given solutions to each of them in this article.
You'll be delighted to enjoy the perks when your score rises, such as reward and low-interest rate card invitations. The less you pay towards your debt, the more you can put towards things that matter.
6. You have transferred or are considering a balance transfer
There's nothing wrong with transferring the balance on a card to another with a low or zero interest rate.
This can be a great way to pay off debt more affordable, as long as you have an aggressive repayment plan in place.
But maxing out one card while applying for another - just so you can move your debt around and/or get more credit - is a recipe for crippling debt and credit disaster.
Regardless of why you're transferring the balance, you should know that doing so is a sign that you probably need help with credit cards.
If you already transferred your old balance to a new card, don't think that card issuers are taking all of your payments and using it to pay down your old debt.
They're paying themselves with super high-interest rates on all your new charges, explains Miranda Marquit at Wisebread.
Let's say your minimum is $30, and you pay $60 to be proactive in paying down your debts, the issuer can use the difference ($30) to pay for your new purchases and then $30 goes to your transferred balance.
Miranda recommends that you stop making new charges on the card.
Instead, she says, pay off the existing balance as quickly as you can - and certainly before the low introductory interest rate period is over. By paying off the old debt quickly and not using the new card, you'll signal to credit agencies to not carefully monitor your creditworthiness ("no problems here, friends!") and you'll smartly avoid a lot of money spent on fees.
7. Spending more than you can afford to qualify for credit card rewards
Many consumers are big fans of cards associated with rewards. From cash-back deals to airline miles, travel points, hotel savings and more, there is a reward for everyone.
The rewards you can get from credit cards, while nice, are often not worth the extra interest you'll accrue if you can't pay off the money you spend to earn such bonuses. And many may simply not be worthwhile at all.
Oftentimes, you are invited to spend a certain amount (let's say, $3,000) in the first three months and you receive a bonus of 50,000 points that you can apply for two free flights!
But do you have $3,000 to spend in three months just to earn two "free" flights?
Many don't. They end up racking up a high balance and then pay fistfuls of dollars in interest and annual fees.
A credit card company is a business, and a business is out to make money.
They dangle juicy one-time bonuses and tantalizing rewards so we'll ignore high-interest rates and annual fees that we have to pay over and over again. Rewards programs are dangerously attractive.
Here are some great tips to consider whether you should consider a rewards card:
- Check the fine print before and after you enroll in a program. Benefits, rules, and restrictions change. You will likely need to buy something before an offer kicks in. What?
- Know how your spending rewards you. Certain offers are valid for specific types of purchases, like cash back at restaurants, or double points for hotel bookings. Don't think you can put your rent on a card, and instantly qualify for the bonus offer. | WiseBread
- Should you go for a rewards card, have a plan on how to use it. Make sure you have the cash to pay for the balances you will put on the card.
Reward Credit cards can be wonderful tools, earned from successful credit management i.e. maintaining a high credit score.
But if you find your wallet full of reward cards or jumping ship each time a new reward card pops up, you may be paying more than you should get just a one-time prize.
8. You know you have a balance but look the other way
If you find yourself wanting to avoid phone calls or ignore a bill because you won't like what you see, it's a clear sign that you have trouble with credit cards.
Voicemails from lenders and a small stack of unopened bills likely signal you have a balance on your card and owe a payment.
First off, don't panic. Nothing is as bad as you think.
You may think it is easier to avoid paying then, especially if you do not have money, but easier is not always what's best.
You don't want an unpaid bill to snowball into something that will cost you more than you planned.
To come up with a solution, you have to first figure out what is the problem. The easiest thing is to set aside some time to go through your mail and/or listen to those pesky voicemails.
You may find that it's simply that you have accumulated some late fees or that you've failed to pay the minimum balance on an old card.
While neither of those scenarios is great, it's not as bad as having your debt handed over to a collection agency, a type of company that credit card issuers hire to try and get their money back.
Once you know the problem, you can take steps to solve it. And guess what? Your lender wants to help you solve it. They don't want to escalate the problem and hand over your account to a debt collector because it will cost them money too.
If you owe a balance, explain to your lender:
- how much you can pay "today"
- when you can issue another payment and how much that will be
- you can call back with a longer term plan, if needed, to get your balance paid.
They'll love to hear you've acknowledged the bill and that you're working hard to pay it.
Should your account be significantly late, and you learn that it's been handed over to a debt collection agency, don't think the world is over. There are several organizations with free advice to help you come up with a game plan.
Here is some helpful advice on how to proceed:
- Remember, no matter what's ahead, you'll get through this.
- Speak with a credit counselor. They're free. Explain your problem and discuss your options. You'll feel better just for having owned up to your problem. Here are some organizations that can instantly offer you support and advice. Give them a call!
- Freedom Debt Relief
- National Debt Relief
- DMB Financial
The credit counselors may suggest the following:
- Switching to debit cards, so you can't overspend. Super easy.
- Working with the issuer directly to pay off the bill. Easiest. Get ready to put on your kindest voice and divert as much of your income as possible to paying off your debt.
- Consider debt settlement. Less easy, but not impossibly hard.
- Find a financing solution, borrowing from friends and family to pay down the debt or seeking out services like peer-to-peer lending.
- Consider bankruptcy. Difficult, but sometimes helpful and necessary.
Hiding in the dark is no way to find the door to financial freedom. Don't be afraid to answer the phone, as your creditors are more interested in working with you—within reason—to find a solution than to write off what you owe them.
Signs, signs, everywhere a sign...
Credit cards are wonderful if you know how to use them correctly. Fortunately, it's easy to know if you're on the right track with your card by knowing what signs you should be looking out for.
Basically, you should be paying off your balance each month and accumulating fantastic rewards and a high credit score in exchange.
Unfortunately, too many of us don't pay attention, and the wrong turns and missed opportunities are costing us a lot because of debt.
Thankfully, once you know if you need help with your credit card, there are a lot of effective and simple solutions to getting your debt paid off. The worst thing you can do is ignore the signs that are telling you to be careful with your card.
If you are interested in getting the best from your credit card or knowing how to avoid the worst, you may want to check out these helpful articles:
What sign did we miss? Which one of these signs saved you or a loved one from painful credit card debt? Let us know in the comments below.