Credit Cards: Are You Using or Abusing Them?

There’s no denying that credit cards are super-convenient:  With a single swipe, you can pay for everything from a tank of gas to your morning coffee.  You can use them to pay bills and earn reward points.  And when you use them responsibly, they can help you boost your credit score.

In other words, when it comes to easy payments, it’s really hard to beat a credit card. Unless, of course, you struggle with the whole “responsible use” part of credit card use.  That ease and convenience can make credit cards just a little too tempting:  If you swipe your card too much and fail to pay off your balance at the end of every month, you might end up with a serious and costly debt problem – a problem that could take years – or even decades – to resolve.

When it comes to credit cards, it’s important to be mindful of your spending and make sure that credit card use doesn’t turn into credit card abuse, overspending, and mountains of high-interest credit card debt.

Are you heading toward a debt problem?  Not sure if you’re overspending?  Here are some questions to help you determine whether your credit card “use” is becoming “abuse.”

1. Are you carrying a balance from month to month? If you’re not paying off your entire balance – in full – every month, you might have a debt problem. And if you find that you’re only paying your minimum balance, you’re definitely heading for credit-abuse territory.  When you only pay your minimum payments, you prolong your debt – and you build up even more in the form of interest, which chips away at your finances over the long haul.

Is your balance a bit on the high side?  Start paying it off ASAP – before things get worse.  Pay at least twice the minimum payment—more if you can—until you have paid off the balance. Need some ideas for a debt repayment plan? Check out this post or this one for some suggestions.

2. Do you use a credit card to buy things you can’t afford? A credit card isn’t a source of additional income – and if you’re using plastic to live beyond your means, you might be on the road to credit card abuse. The best way to figure out what you can afford is to create a budget.  Start with your household income, then create categories for things like rent or mortgage, monthly bills, groceries, and so on.  You should also budget for savings, as well as “extras” like entertainment or spending money.  And if something doesn’t fit in your budget, you probably shouldn’t buy it – and you definitely shouldn’t put it on your credit card.
3. Do you use your credit card as an emergency fund? You can’t schedule emergencies, which is why it’s critical to have an “emergency fund” set aside for things like car repairs or an unexpected dental bill – or, even worse, if you or your spouse is laid off or unable to work for some reason. Ideally, your emergency fund should be enough to cover living expenses for three to six months, but even a few hundred dollars is a good start.

If you’re using your credit card as your emergency fund, though, it’s time to take a long look at your finances.  Using your credit card for emergencies can easily lead you to a years-long struggle with high-interest debt.   If you’re debt-free, start setting money aside in a dedicated emergency fund.  If you’ve got some credit card debt already, pay it off as soon as possible and start putting that money into an emergency fund. It will be much easier to handle life’s curve balls – and it will also give you tremendous peace of mind, knowing you’ve got something in reserve in case the unexpected happens.

4. Do you have a wallet full of department/big box store credit cards? Store credit cards often have a much higher interest rate than standard credit cards – and if you’re carrying balances on multiple cards, your credit score is going to take a hit. If you can’t stop yourself from opening – and using – store credit, you’re probably abusing your credit.
5. Are you constantly looking for balance transfer offers? Balance transfers can be a good option for reducing debt, if you use them responsibly and stay with the payoff plan.  Balance transfers are about more than getting a lower interest rate. They’re about paying off your debt before that super-low interest rate expires – and without racking up new debt in the process.

If you aren’t careful, it’s easy to get stuck in an unending cycle of balance transfers – and once you do that, you usually end up with more debt than you had before.  For a more in-depth discussion of balance transfers, check out this post.

6. Are you paying late fees and penalties on your credit cards? One late payment is understandable – everyone makes mistakes from time to time. But a pattern of late credit card payments might be a sign that you’re not staying on top of your credit card debt.

Late payments can be costly: You’ll end up paying hundreds – or even thousands – in additional interest, penalties, and so on.  Worst of all, you’ll end up with a lowered credit score – and the lower your credit score, the harder it will be for you to buy a house or secure a good interest rate.  If you’re having trouble making payments on time, consider enrolling in an auto-pay system to avoid racking up late fees.  And if you’re not paying because you can’t afford your payments, do yourself a favor and call your credit card company to work out a repayment plan.

If you answered “yes” to any of these questions, it may be time to do a credit card reality check.  If you suspect that your credit card use is crossing the line into credit card abuse, now’s the time to turn things around – before it’s too late.