Over 40% of American households carry some credit card debt, and many of those carry balances over $5,000. Although having some credit card debt can actually benefit your credit profile, the debt game is a slippery slope for some people. In order to keep your financial profile healthy and in good standing, be sure to avoid these three debt mistakes:
- Failing to prepare before applying - When you make a large purchase you shop around for the best deal, right? So why not do the same when looking to borrow money from a lender? Not all lenders are the same and they can vary in important ways when it comes to the terms and conditions of your credit account. Credit card companies make money off of high interest rates, over-limit and late fees; and they know that any one of us is likely to slip up at any time. Before applying for a credit card or line of credit at a bank, compare their terms and details to find the best deal.
- Poor credit usage - You have to borrow money to make your mark in the credit score world, but too many people don't know how much to borrow or how quickly they should repay it. Having a balance that is too high and paying only minimums for years on end can actually do more harm than good to your credit score. A good rule of thumb is to keep your balance lower than 30% of the total available limit. For example, if you are approved for a $10,000 spending limit, keep your balance less than $3,000. Going over 30% can reduce your credit score and reflect poorly to other lenders. Paying down your balance and keeping an open, zero balance card will not only save you money, but boost your credit score. The idea to maintaining a healthy credit profile is to use some of your allowable line of credit, repay it fully, leave it open and empty a while, and repeat.
- Not recognizing the danger zone - That slippery slope can creep up on the best of us and debt can get out of hand before we know it, especially in tough times like job loss or a medical emergency resulting in tons of unexpected financial obligations. The key is to keep an eye out on your debt and recognize when the problems begin. Are you using credit cards to pay for essential living expenses like groceries or utilities? Are you worried about not being able to meet all of your expenses and debt obligations? Are you at risk of, or have already missed, a payment? These are all signs of the debt danger zone. Speak to an experienced Sacramento bankruptcy attorney about your debt relief options. They can review all of your options and help guide you to make an educated decision.