Ten Commandments of Credit Cards

Credit cards have become a regular part of most of our lives.  Most of us use them as our major method of paying for our purchases.  A large portion of them (including me) even make it our primary method of payment, because of the ease of use, the rewards offered by the credit card companies, or simply our own personal preferences.  Yet, we also know that they can be hazardous to our financial health; stories abound of people who have accumulated tens of thousands of dollars in credit card debt, sometimes even more than they can pay.  Sometimes they remain in debt for years or decades, unable to make any progress toward paying down their debt.

How can we use credit cards without being overwhelmed by them?  We have to be careful with how we handle them, ensuring that they work for us, rather than forcing us to work for the credit card companies.  To help show you how to do this, I present The Ten Commandments of Credit Cards, ways to maximize the advantages of your credit card use while preventing (or reversing) the damage that improper use can cause.  Unlike the original Ten Commandments, not every commandment below will apply to every person with a credit card; different people have different relationships with credit cards, and thus, need to hear different advice.  With that in mind, let’s consider some words of wisdom for those men and women who can use credit cards without ending up in debt.

For Those With No Credit Card Debt…

I) Don’t Build Up Debt – It sounds pretty simple, but that’s really the heart of smart credit card use.  If you pay off the balance in full each month, you’ll be able to use credit cards without having to pay interest or penalties.  If you have a rewards card, you’ll also be able to build up airline miles, points or even cash simply by doing your regular, everyday spending.  Getting money from credit card companies without giving them any of your own; that’s the pinnacle of good credit card usage.

Resist the Lure of the Card Reader...
Resist the Lure of the Card Reader...


II) Budget For Your Credit Card Bill
– Sit down and make up a budget showing how much income you have each month, as well as all the expenses you have to pay out.  Once you know how much of your income is left after rent/mortgage payments, utilities, insurance payments, savings, and investing (for retirement or other goals), you’ll have to know how much you can afford to spend.  Spend less than that amount and pay it off each month in order to keep yourself debt-free.

III) Don’t Spend More to Boost Your Rewards – If you are using a rewards card, it’s very tempting to spend more money than you can really afford in order to boost your potential rewards; I know, I’ve faced that temptation myself.  Just remind yourself that even the highest rewards offered by credit cards are much lower than the interest rates for balances on said cards, and that staying within your budget will be much better for your bottom line.

IV) If the Temptation is Too Great, Drop the Card – Sometimes, you just need to get away from any sort of temptation.  If you find yourself spending up to the limit of your credit card budget, or even going over it,  the better part of smart money management might be to eliminate the temptation.  Relying on cash, debit cards, and checks will limit you in what you can spend, enabling you to better control your spending.  No reward or purchase is worth the chance that you will find yourself owing more than you can afford on your credit cards.

For Those With Manageable Credit Debt…

V) Stop Adding to the Debt – If you have credit card debt, the first order of business is to stop adding to it.  Spend less on your cards than you can pay off each month, so you can apply the excess to paying down your previous debt.  If you are still having trouble using credit without increasing your debt, take the advice from Commandment IV and drop your card; relying on other methods of payment, particularly cash, will cut down the your urge (and ability) to spend more than you have available.

VI) Aggressively Pay Down Your Debt – If you’re only paying the minimums on your credit cards, you are going to be paying for a very, very long time.  You need to pay down your debts aggressively, putting as much money as you can into paying down your debt.  Don’t empty your emergency fund or take money from your retirement account, but set a goal for each month above and beyond the required minimum, an amount you will pay in addition to the minimum charged by the credit card company (which is usually far below what you will need to pay to really cut down your debt).

VII) Negotiate With Your Card Company – Asking your credit card company to lower your interest rate will lower the amount you will pay overall as well as the increase in your debt from month to month.  If you are a good customer with a strong history of repayment, particularly if you have offers for balance transfers from other card companies, you can likely get your rate reduced, making it easier to pay down your debt.  Combine that with the above tactics, and you can hopefully cut your debt down in no time flat.

For Those With Unmanageable Debt…

VIII) Cut Down Your Spending Drastically – If you are so deeply in debt (credit card or otherwise) that you are having serious trouble paying it down, it’s (past) time to slice your spending to the bone.  Cut out most of the luxuries (slowly, if need be) in your life, reduce the costs of recurring bills (by cutting services and added features), and reconsider both the major and minor expenses in your life.  Dealing with a major debt requires a major commitment; slice your expenses as slim as you can, and put the money into debt repayment.

IX) Consider Consolidating the Debt – If the amount of credit card debt you have is too much for you to pay it down, one option is to consolidate it; that is, paying off the outstanding credit card debt with another loan, possibly from a family member or peer-to-peer lending network like Lending Club.  (Be leery of commercial ventures that offer to consolidate your debts; as with anything that involves money, scams are possible, even likely.  Thoroughly research any companies before you give them your trust and financial information.)  If you do go this route, do NOT keep using your credit cards; the last thing you need is more credit card debt on top of your new loan.

X) Talk to the Card Company (Again) – Interestingly, even if the card company is not willing to work out an arrangement to help you pay down your debt when you don’t owe much, they could be willing when you are deeply in debt.  If you are on the edge of bankruptcy, they may be afraid that they will have to write off your debt completely.  (Since credit card debt is unsecured, that is, not backed by any tangible asset like a house or a business, it’s much harder for credit card companies to collect anything in cases of bankruptcy.)   Attempt to come to some agreement that will enable you to eliminate the debt while making reasonable payments, and be sure to get verification so you have proof of the new arrangement.

If you follow this advice, you should be able to get out of debt and/or stay out of debt, and avoid having to consider bankruptcy or other much more drastic measures.  Good luck with proper care of your credit card!

9 Responses to Ten Commandments of Credit Cards

  1. Hey Rog,

    Can you verify something for me? Because I pay off my credit card every month, I’m not entirely sure about this.

    Let’s say you have a $1,000 CC bill due this month and you pay off $999. Does the CC company charge you for the full $1,000 in interest? Or, do they charge for you for the remaining $1?

    I think it’s the former right?

  2. FS,

    In general, the procedure would be that the credit card company would charge you only on the portion of the bill you did not pay off. You only owe them one dollar, so they should only charge you for interest on that amount you owe. Think of it this way: you aren’t charged any interest for the money you put on your cards and pay off each month, right? (I know I’m not.) That shouldn’t change even if you don’t pay off every cent of your debt; the amount you do pay back isn’t charged any interest provided you pay it off during the grace period, while the amount you don’t accrues interest (usually daily).

    Now, this is assuming that the credit card company doesn’t have something in their fine print that allows them to charge interest during the grace period (or more easily, and less duplicitously, simply not have a grace period), in which case you could be charged interest from the day you make the charge (I believe this is how most cards handle cash advances, actually). There’s also double-cycle billing, where the company charges you for the average outstanding debt you had over the past two months, which could also be used to make you pay interest on a debt you already cleared. But that practice will be against the law as of next year, so don’t worry too much about it.

  3. @Ace of Wealth: Thanks for the compliments. One of the things I always found annoying about most pieces of advice about credit card usage is the assumption that everyone has credit card debt. Most writers seem to believe that until you pick up their books, you don’t have the capability of using credit wisely. I thought my list of suggestions should take the opposite view, starting with advice to people who have used their credit well so far and going onto those who had more trouble.

  4. The main reason you can’t pay your debt in full is because you spend more than what you are able to pay for. Don’t get carried away with the idea that you have greater spending power because of your credit card. Be mindful of your real purchasing power to avoid going beyond your spending limit.

    At the end of the day, what’s important is that you’ve been responsible in using your credit card. Avoid getting addicted to spending and make that credit card work for you instead. Don’t bite more than you can chew!

  5. @Ava Davis: Fair enough; many people don’t like using credit cards (or even having the temptation to use them), and cutting them out of your life is much better than giving in to temptation and winding up in trouble. Better to stay safe than sorry.

    @Scott: Another good list of advice; if more people kept a close eye on what they spend and ensured that they had enough available to cover the resulting bills, there’d be much less credit card related trouble in the world.

  6. It’s just so easy to get into bad spending habits if I carry my cards around with me every day. The only way i can stay on top of them is to use cash, keep the cards at home, and only take them out after I’ve had time to think about the purchase.
    .-= DebT´s last blog ..Credit Card Debt Solutions =-.

  7. @DebT: Very true; carrying your cards around does make it easier to charge things. Good plan to keep from using your credit cards in a thrifty manner.

  8. As much as credit cards have become an absolute necessity for just about everyone, it’s important to remember they’re designed to make certain people money – and that’s never the person who’s using them.

    Thank you for the good tips on managing and reducing credit card debt.

  9. @Jhon: True, a debt settlement attorney can be helpful, particularly if your debt is starting to get too overwhelming. Hopefully, you can handle your debt without one, though.

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