1. You Can Only Afford the Minimum Payment
Prioritizing bills isn’t easy. After paying the rent, food shopping, water and electricity bills, and other basic necessities of life, it can be difficult to pay off a credit card bill, too. If you can only afford the minimum payment on the credit card, then you probably have some spending problems.
Making only the minimum payment on a credit card will keep your account up to date and in good standing, and that’s a good start. But it will take years to knock down the balance, and even longer if you continue charging purchases on the card.
Here’s an example: If you owe £5,000 on a credit card at 18% interest, paying the minimum amount due each month (assuming 3% of balance) will take you over 16 years to pay it off. Along with paying the £5,000 principal, you’ll have paid £4,698.46 in interest.
If instead you pay £200 each month that will cut down the repayment time to under 3 years, at which point you’d have paid £1,313.96 in interest. Another option is to transfer the balance of your existing credit card to another with a 0% interest rate; that way it will take less time to pay off without the costly interest charges. However be careful you don’t fall into the Transfer Balance Game. (see point 2)
2. You Play the Transfer Balance Shell Game
One way to get out of paying interest on a credit card balance is to transfer it to a 0% APR balance transfer card. You can save thousands of pounds in interest, but usually only for one year during the introductory period. After that, you’re back to paying interest again.
If you’re constantly moving credit card balances to 0% APR cards so you can avoid paying interest, it’s a sign your credit card spending is out of control.
It’s one thing if you’re using that year of no interest payments to pay off a credit card. But if you’re still running up the balance, you’re getting nowhere in paying off the debt.
3. You’re Maxed Out
Your credit cards have credit limits, and if you’re close to those limits it can be difficult to extend more credit when you really need it — such as in an emergency.
Maxing out your credit cards can also hurt your credit score because your credit ratio — the percentage of available credit being used — should be under 30% for a top credit score.
4. You Make Impulse Buys on Credit
Credit cards are easy to pull out of a wallet or purse to pay for anything, from a lunch date to a down payment on a new car. If you’re using credit cards to buy anything you want whenever you see it, such as a item of clothing you see in a store window or an ice cream cone on a hot day out, then you’re more likely to rack up debt faster without realizing it.
Paying cash for such purchases can help you control spending. If you don’t have the cash on you, then you won’t be able to make the impulse buy when it pops up.
5. You Buy Things You Can’t Afford
Along with impulse buys, credit card users can get in over their heads in debt by charging every expense — including ones they can’t really afford.
If you’re using cash to buy groceries, for example, you’re less likely to get that extra box of cookies if you don’t have enough money with you. But with a credit card, the sky’s the limit.
6. You Hide Debt From Your Spouse
If getting the post makes you anxious because your spouse may see your credit card bill, you have a debt problem and need to tackle it together.
Hiding debt from your spouse can also hurt your relationship, so working together on this can solve two problems simultaneously.
7. You Have Credit Cards From Every Store
Store-branded credit cards can be enticing at the counter. They often offer discounts of 20% or more on purchases that day, and approval is almost automatic.
But they also have high interest rates of up to 29%, setting you up for more interest payments if you don’t pay the balance in full each month. Store credit cards also offer an easy excuse to go shopping.
And since a store’s credit card can only be used at the issuing business — you can only use an Argos card at Argos stores, for example — you’ll need credit cards from every store you shop at if you want to take advantage of the deals they offer.
What to Do
There are things you can do if you spot any of the above signs in your financial life. To recap, here are a few things to try before using your credit cards again:
• Seek credit counselling or advice from the government approved Money Advice website on credit card or debt problems. https://www.moneyadviceservice.org.uk/en/categories/credit-cards-and-credit-ratings
• Put your credit cards away and pay with cash only.
• Pay more than the minimum on your credit cards and tackle the debt.
• Ask your credit card company for a lower rate.
• Transfer balances to a 0% APR card and work on paying off the principal within a year
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any bank, card issuer or financial advisor.