You all know that I think credit cards are awesome. Credit card rewards have helped me travel the world for almost nothing, and they can be the doorway to great travel benefits. However, credit card debt can be crippling financially and should be avoided at all costs.
Avoidable
Credit card debt is completely avoidable. I know so many people with credit card debt accrued from stupid and unnecessary purchases. Sure, there are people that used credit as a lifeline after a layoff. For the large number of the 39% of Americans who carry credit card debt month to month, the spending that got them into debt was discretionary.
Vacations, electronics, hobby, restaurant, alcohol, tobacco, and some clothing purchases (you need basic clothes), are all avoidable expenses. Unless you can pay it off in full each month, you should not pay for those types of purchases with a credit card.
High Interest Rate
The national average interest rate is about 15%, but can be over 23% for people with bad credit. The people in the worst shape are those who end up suffering the most from credit card debt.
I don’t think most people want to spend years paying off a vacation at 18%. If you only pay the minimum on a $1,000 credit card, you will pay hundreds in interest. Don’t give your hard earned money to the banks, avoid the debt in the first place.
No Benefit
There is a popular myth that carrying a small balance on your credit cards help your credit score.
NOT TRUE.
In fact, it is quite the opposite. While having credit cards with high open limits can help your score, the best thing you can do is keep the cards with zero balance. It is good to use the cards from time to time to avoid getting shut down for having an inactive account, but keeping a zero balance is the best way to help your credit score.
There is absolutely no benefit to paying the banks interest and carrying credit card debt from month to month.
The Debt Cycle
It is always easier to get into debt than get out of debt, and with high interest rates it is easier to get more debt than pay down your balance. It’s a vicious cycle.
Always do everything you can do avoid getting into debt in the first place. Just like health issues, you should always be on a good spending diet and exercise plan. Always keep a good budget, always work to stay out of debt, and always try to earn more. If you do those things well, you have no credit card sins to worry about.
Have You Ever Been in Credit Card Debt?
How did you get out? Please share your advice to help other readers that still have credit card debt to pay off.
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Definitely agree. The best credit card debt is what’s paid off every month, without fail.
I got pushed into a very deep credit hole due to a motorcycle accident, but managed to dig myself out in 2 years by budgeting, living way below my means, and paying something, even a few dollars, to each bill every month.
Once you’ve climbed out of a hole like that, being debt free feels so good, you want to stay debt free forever. It was a huge event for me to sign my mortgage and go back into debt again.
All I have right now is a mortgage. 14 years to go and I’ll be debt free!
I pay less per month than I did when renting, and I have a 2.875% interest rate, so I can’t complain about this one.