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Keep an Ideal Credit Card Balance to Avoid Future Financial Problems |
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by: Debbie Dragon
The average American household carries over $8,000 in credit card debt from one month to the next. In recent years, it was almost too easy to get a credit card. New high school graduates, college students, and individuals with problems paying their bills on time could all apply for, and receive, a credit card with their name on it. As the housing market came tumbling down, and more Americans started getting laid off – credit card lenders began tightening their purse strings and making it more difficult for individuals to get approved for credit.
How to Manage Your Credit Card Effectively
You'll read credit card advertisements everywhere that discuss the benefits of credit cards and how they serve to make lives easier. What you won't read as frequently, or see on television commercials, is how a credit card can ruin your financial future if you don't manage it effectively.
Credit card debt can take over your life. If you use too much of your credit limit or spend more than your maximum credit limit, you're not only going to end up paying additional fees to your credit card company – but you'll experience a drop of your credit score.
Managing a Credit Card Balance
Ideally, you'll use a credit card and pay it off in full the same month. If you need to make payments over a few months to pay off your purchases, create a budget and stick to it. Try to pay it off as quickly as possible to pay less in interest and finance fees.
If using your card to help you finance a large ticket item, you'll want to try and keep your total credit balance 35% to 40% of your available balance. This includes all of your credit accounts from credit cards to mortgages to loans. The closer your balance is to your maximum credit limit, the more it can affect your credit score (in a negative way). People who have used a lot of their available credit appear to be higher risk than someone who has a lot of money available to them.
Whatever you do, don't skip a monthly payment! If your finances become tighter than usual, at least pay the minimum amount due before the due date. This will keep you from paying additional fees for making a late payment, and can help prevent interest rate increases that are a result of making a late payment (and being considered a higher risk for default by the credit lenders). If you can, make another small payment to your credit card before you receive your next statement. It will help reduce your balance and lower the amount you're paying towards interest a little faster than if you only sent the minimum amount due on the statement.
Keep an eye on your payment due dates, because sometimes they change! Read the back of your credit card statement to see how many days it takes to apply a payment. While most companies honor the post mark date on mailed payments; some apply them based on the date they receive them. Most credit card companies tell you to mail your payment at least 7 days before the due date to ensure it gets applied correctly. If you use automatic or online payments, keep an eye on the due date to make sure it never changes to occur before your payment will be made. The billing cycle can range up to 7 days or so, which means your due date can fluctuate in either direction, causing your scheduled payments to be made after the due date.
Credit cards are very convenient when you use them correctly. Failing to use a credit card correctly will haunt you for years to come.
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Credit Card Articles > Using Credit Cards > Keep an Ideal Credit Card Balance to Avoid Future Financial Problems
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