Resources The Hazards of Relying on Credit Cards

by Laura Varela / October 4th, 2019

Man surround by sharks and his boat is a credit card

Credit cards are a great convenience, there’s no doubt about it. They reduce the need to carry cash, you can use them to pay for an unexpected expense, and they help you build a credit history when you’re trying to get a loan. But when you don’t pay your balance in full each month, credit card interest rates can quickly sink you into deeper debt.

The Federal Reserve Bank of New York published a report in early 2019 which showed that credit card debt in the U.S. rose to $870 billion, touching the 2008 peak during the Great Recession. Today, 55% of U.S. adults carry credit card debt month-to-month instead of paying off their balances.

Sometimes carrying over a balance is unavoidable. Maybe you’re hit with a medical expense your insurance doesn’t cover or your car’s transmission fails and you need a new one. If you pay off that balance over a few months, you should be fine.

However, trouble begins when you start using credit cards to maintain a lifestyle that doesn’t match your income. One of the basic rules of personal finance is “don’t spend more than you make.” When you break that rule, you set off circumstances that can grow into bigger and bigger problems.

Are you heading into troubled waters? The National Foundation of Credit Counseling says if you have any of the following problems, it’s time to make a course correction:

  • Only able to pay the minimum on credit card bills each month;
  • Increasing credit card balances;
  • Skipping monthly payments, paying late, or making short payments;
  • Moving debt around through balance transfers;
  • Seeking cash advances, payday loans, title loans, or other nontraditional credit;
  • Arguing at home over money;
  • Charging items that were previously paid for with cash; and
  • Attempting to obtain new lines of credit because existing lines are near their limit.

If one or more of these issues apply to you, consider making any of the following changes now before your financial situation becomes unmanageable:

  • Create a budget using an online app like Mint or PocketGuard to keep track of expenses and find out where you’re overspending (clothes, dining out, etc.);
  • Use cash or your debit card instead of credit cards;
  • When you have a little extra money at the end of the month, pay more than the minimum payment on your credit cards;
  • Stop using shopping as a recreational activity.

If you need help finding ways to free up money and reduce your spending, check out the numerous articles on this site about saving and money management.