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Taking Control of Credit Card Debt

If you are making only the minimum
monthly payment on your credit card, you’re doing yourself a huge
disservice.  Instead, take the necessary
steps to get your credit card debt under control.

Signs You Could Be Heading for Trouble

• Depending on credit to pay for the basics like food and utilities
• Responding to offers to transfer balances from one card to another
• Increasing your limits
• Leaving no cushion in your financial life for even a small or unplanned expenditure
• Making only minimum monthly payments
• Ignoring credit card statements (or other bills)
• Maxing out all your credit cards

Fixing the Problem

You don’t have to face this alone. It’s easy to lose control of your spending, but there are ways to regain control. Gaining control involves taking deliberate positive steps and possibly even getting help.

The first step is to take a realistic assessment of your budget. If you haven’t set up a budget, now is the time to begin. You can also track your spending using an excel spreadsheet to create a budget. Knowing what money is coming in (income) and what money is going out (expenses) is critical when determining steps to fix the problem. The internet is a great source for student budget templates.

Consider using the credit card with the most favorable terms and limit the number of credit cards you have -- too many open lines of credit may have a negative impact on your credit score.

What Improves a Credit Score?

• Paying bills on time.
• Having a small outstanding balance in proportion to total credit lines
• Having a reasonable number of credit cards.

What Hurts a Credit Score?

• Missing payments or failing to pay at least the minimum amount due.
• Having delinquent accounts.
• “Maxing out” your credit cards.
• A short credit history
• Declaring bankruptcy

Benefits of Good Credit

Being creditworthy may provide you with easier access to credit. You may also benefit from:

• The ability to purchase a product or obtain a service that may not otherwise be affordable if it had to be
  paid for upfront.
• It may be easier to rent an apartment, especially if the tenant is likely to pay their rent on time.
• It can be more convenient (or safe)
  to not carry large amounts of cash.
• The peace of mind that comes from
  having emergency funds for unexpected expenses.
• Simplified recordkeeping with possibly only one monthly bill.
• Optimal interest rates, terms, and a reduction in the costs associated with loans, credit cards, insurance and other financial resources.

Consequences of Poor Credit

Poor credit may result in several negative consequences. Some examples may include:

• Failing to qualify for the purchase of a home, car, or another “big-ticket” item.
• Paying more for a loan because of
  higher interest rates and fees.
• Limited opportunities to access
  different types of financial resources such as loans, credit cards, insurance, etc. or possibly difficulty entering or obtaining contractual
  agreements.

Tips for Wisely Managing Credit

• Pay your bills on time. This makes
  up the largest part of your credit score.
• If possible, pay your bill in full each month, or at least pay more than the minimum due. When possible, apply extra payments toward the highest interest rate debt.
• Limit the amount of debt on open lines of credit and limit the number of new lines of credit. Credit inquiries impact credit score.
• Don’t close all your existing accounts or lines of credit. The length of credit history has an impact on your credit score.