This is the third and final post in the three part series “The Love/Hate Relationships of Credit Cards”, on the relationship problems we most frequently see with credit cards and how to fix them. To read the first post in this series, “The Emergency Card”, click here. To read the second post, “The Treat Card”, click here.
The “Just to Build Credit”, or “Like Cash Card”
The story usually goes like this:
“I knew that if I got a credit card and paid it on time every month it would build my credit. I figured I’d get one and use it instead of cash. I would be spending the same amount of money I was already spending, just spending it in a different way. It worked really well. At least, for the first couple of months. Then I ended up a little over my budget one month. I was ok, I paid it off with some savings. The next month I was very careful and stayed under my budget like I was supposed to. But the overspending kept creeping up again, and again, and again… It’s not that I bought anything big. I was just over budget several months in a row, because I wasn’t tracking my money as well as I’d had to when I just used cash. I opened a couple of other cards, to keep my spending spread out and under control. That was a terrible idea. And pretty soon it had hit my savings hard. But by then I’d gotten in the habit of spending that extra money each month so overspending felt normal. Now I’ve spent so much of my savings trying to catch up, and I’ve still got so much debt. The worst part is I don’t have anything big to show for it. My debt is like an ugly monster, and all I wanted to do was build credit so I could get better deals and save money.”
So what’s your first step? Get the cards out of your wallet, and out of temptation’s way. Freeze them in a bucket of ice. Cut them up. Give them to your spouse, or a trusted family member or friend. Bury them in the backyard. Do whatever you have to do, just do not close the account. Closing the account will hurt your credit score even more, and you’ll still have to pay the card off.
Then start paying the card or cards down, today. As we covered in this post, even if you are making the minimum payments on time, just carrying a high balance on your cards will bring your credit score down. Anything over 20-30% of your credit limit can be considered a high balance.
How can you avoid this problem in the future? Once the card is finally paid down to $0 find a monthly expense, something that’s fairly steady and something you can charge. Examples are a gym membership, a Netflix subscription, or a utility bill. Make sure it’s an expense that is no more than 30% of your total credit card limit. Set it up to be billed to your credit card, and set the credit card on auto-pay. This way you will have a recurring expense on the card each month and will build your credit, but you’ll also be able to keep it paid off on time and avoid interest charges.
Let us know if you’ve let a card run away from you, and how you caught back up in the comments below.
We wish you a wonderful Valentine ’s Day next week, and that you will take charge and create a financial picture for yourself you will love this February, and all of the upcoming year.
Until next time…
The Counselors at Affordable Home Provider
Not on the Path to Homeownership program? Call us at 704-900-0404 or visit us at www.affordablehomeforu.com to get started today!
This series of posts is over, but there is much more to come. Follow our blog to learn how you can save $56,856.11 on your home, coming out on March 7th, .
Disclaimer: We are not a lender. We are not CFPs. We are Certified Affordable Housing Providers, committed to empowering families and individuals through our Path to Homeownership program to enjoy the American dream of homeownership. We are not a credit repair company. We are affiliated with local and national credit repair companies and lenders, who work with us to make the Path to Homeownership program a success so our residents are able to purchase their own homes.