It's easy to pay for purchases using your credit card, but it's not always easy to keep credit usage under control. In fact 93% of all insolvent debtors owe money on some credit cards at the time they seek debt relief. Their average balance is as high as $16141.38, so we can say that there are many people who use their credit cards more often than they should.
Here are 5 signs you may be over your head and need to take action to manage your credit before you hit the danger zone:
1. Use A Credit Card To Meet Your Needs
Most people who are seriously troubled by credit card debt use credit as a source of income. Contrary to popular opinion it is not always big purchases like home entertainment systems or large vacations that cause long-term financial problems. This is the constant use of a credit card over time to pay more than you can afford to pay.
2. Use Cash for Short-Term Cash Flow Needs
It is a slippery slope down the debt spiral if you use the down payment on your credit card to pay for food, entertainment or other daily living expenses. While not as bad as day pay loans, cash on credit cards comes at a very hefty price. Interest is charged based on cash from the day you withdraw funds and you may also be charged a service fee. Using cash to pay bills is one way to over-the-top debt.
3. Your Credit Card Debt Increases Every Month
This is a clear sign you are using your credit card as debt, not as a means of payment. If you don't know, check back on top of your last 6 reports. If your credit card debt has increased over the past few months, you need to reverse the trend. Ideally you will never use your credit card as a form of loan. Not only is credit card debt a sign of poor money management, it is a dangerous form of credit to rely on. Because credit cards are so convenient, it's easy to spend more than you can afford to pay. Soon you are stuck in a high-interest credit and debt cycle that is difficult to retreat.
4. You Have Several Cards And You Have Reached Your Credit Limit
Juggling payments between multiple credit cards or opening a new card because you have maxed out an existing card, is a sure sign that you are overusing a credit card as a way to balance your over-extended budget. If you have three or more cards, all with your balance don't use their credit cards the way you should. Credit cards should be used as a means of payment, not as a way to increase your credit limit.
5. You Only Make a Minimum Payment On Your Debts
This is a big one. There are many people who end up filing for bankruptcy but are never defaulted on their payments. You might think your debt level isn't too bad just because you didn't miss a payment. But just paying the minimum means you barely cover interest and are making no progress towards reducing your debt. The couple is by continuing to use the credit card and you are moving in the wrong direction.
If you answered yes to all of the statements above, then these are warning signs you may be complaining to an expert about how to handle your credit card debt. Talk to a credit counselor, or if you owe more than you can pay, to a trustee in bankruptcy about your debt relief options, including:
- Create a personal budget and debt reduction plan;
- Work out a debt management plan with your creditors to reduce or even interest-free repayment periods;
- Settle your credit card debt by submitting a consumer proposal.