Managing your Credit Card Debt
Having a credit card may be convenient at times, but without a proper budget and debt management in place, the user often ends up accumulating a lot of debt.
Using a credit card is a very common method of acquiring a short term loan from the bank. Unfortunately, credit card users tend to overspend on their available budgets, in particular consumers that have more than one credit card. This can lead to an accumulation of debt and interest payments if the user fails to pay off the balance by the due date. Consequently, the user may end up paying more for an item than it was originally purchased for. In addition, some vendors may charge the customer a fee for using their credit card. Therefore, cash may be a wiser choice.1
Many believe using your credit card and acquiring a short term loan can increase your credit rating. This is only true if you are able to pay your balance in full before the due date.2 If you are carrying a balance past the due date, it can lower your credit score and make it harder for you to borrow in the future.
Also, credit cards can be very vulnerable to fraudulent acts. The security of your credit card relies heavily on adequate physical protection and protecting the privacy of your credit card number. A thief only needs the account information in order to use it; usually it can be done just by swiping the card.3 Account information includes the name of the cardholder, account number, expiration date and verification code. Nowadays, credit cards are more vulnerable with the invention of the electronic magnetic credit cards. PayPass or tap cards require users to tap their cards on a wireless machine to pay.
Fortunately, many banks and credit card issuers take active measures to improve the security of credit cards with new technology in order to minimize fraud.4 Users should contact their financial institution to learn about these measures and precautions. Finally you should monitor your credit card statements regularly for purchases that may not be yours.
What should you do?
In order to manage your credit card debt, it is vital for you to understand the concept of smart spending. Consumers should be able to balance their expenses and savings. Here are a few tips to keep your credit card usage on track:
- Spend less than you earn.
- Make sure you have enough money to pay off your balance by the due date.
- Avoid credit cards with annual fees.
1 Business Insider, The Pros and Cons of Credit Card. Retrieved from Financial Post: http://business.financialpost.com/2012/05/24/the-pros-and-cons-of-credit-cards/
2 Financial Consumer Agency of Canada, Understanding your Credit Report and Credit Score. Retrieved from Government of Canada.
3 BankNerd.ca, Credit Card Fraud (Part 1). Retrieved from http://banknerd.ca/2009/07/09/credit-card-fraud-101-part-1/
4 Wall Street Journal, Identify Theft & Credit Card fraud - How to Protect Yourself. Retrieved from http://guides.wsj.com/personal-finance/credit/how-to-protect-yourself-from-identity-theft/