Avoid Credit Card Dependence

The discrepancy between the cost of living and income had led to Americans to rely more of credit cards. Approximately 70% of Americans have at least one credit card, with the average credit card balance over $16,000. With the average credit card interest rate at 18.76%, the average household is paying almost $1,300 in interest each year. (Source: CNBC, 2016).

Ask These Questions to Evaluate Your Credit Card Dependence

1. Do you rely on credit cards to make it until your next paycheck?
2. Do you seem to always have to put unexpected expenses on your credit card?
3. Do you spend more than you would with cash because your card has rewards?
4. Do the holidays leave you with a mountain of debt?

If You Answered Yes to Any of These Questions, Consider the Following

• Put your credit cards somewhere for safekeeping to reduce the temptation to use them as your regular form of payment.
• Become more disciplined with spending by enacting a cash-only policy. Debit cards may allow you to overdraft your account, which may charge a fee for this overdraft privilege.
• Consolidate your balances to fewer credit cards that have the lowest interest rates. While closing credit cards can have a negative impact on your credit score, it may be better to have that as your temporary credit setback rather than going deeper into debt if you can’t control your spending.
• Shock yourself by looking at your credit statements to see how much you’re paying in interest annually, how long it will take to pay off the balance, and how much interest you will pay if you only make the minimum payment.

In addition to the issues of becoming dependent on your credit card, it may also enable you to overspend, leading to debt.

Do You Have Too Much Debt?

Various rules of thumb exist to help determine when debt levels are excessive. The problem with rules of thumb, however, is they don’t take into account your unique circumstances. Look for these signs that your debt level may be getting too high:

• You have no money left over at the end of the month. If you have nothing left to save after paying your bills every month, your debt may be too high.
• You’ve reached your maximum credit limit. If you’ve maxed out your credit card limits or are considering obtaining new cards for additional credit, your debt may be getting out of hand.
• You’re only making minimum payments. Minimum payments on credit card debt are so low, it can take decades to pay off the debt.
• You don’t have an emergency fund. Ideally, you should set aside three to six months’ worth of living expenses in case of emergencies, such as a job loss or major home or car repair.