It’s easy to pay for purchases using your credit card but it’s not always easy to keep your use of credit under control. In fact money owed to credit cards at the time people file debt relief accounts for approximately 31% of their debt. Their average outstanding balance on credit cards alone was $16,174, so we can safely say that there are a lot of people using their credit card more often than they should.
Here are 5 signs you may be in over your head and need to take action to manage your credit before you hit the danger zone.
1. You are using credit cards to make ends meet.
Most people who are seriously in trouble with credit card debt are using credit as a source of income. Contrary to popular opinion it’s not always a big purchase such as a home entertainment system or grand vacation that causes long-term financial problems.
It’s the continuous use of credit cards over time to pay for more than you can afford to repay.
2. You rely on cash advances for short-term cash flow needs.
It’s a slippery slope down the debt spiral if you are using advances on your credit cards to pay for food, entertainment or any other every day living expenses. While not as bad as payday loans, cash advances on credit cards come at a very hefty price. Interest is charged on cash advances from the day you withdraw the funds and you may also be charged a service fee.
Using cash advances to pay bills is a one way ticket to debt overload.
3. Your credit card debt is increasing every month.
This is a clear sign you are using your credit cards as debt, not as a payment tool. If you don’t know, check back on your last six statements. If your credit card debt has risen over the past few months, you need to reverse the trend.
Ideally you would never use your credit card as a form of borrowing. Not only is credit card debt a sign of poor money management, it is a dangerous form of credit to rely on. Because credit cards are so convenient, it’s very easy to spend more than you can afford to repay. Soon you are trapped into a high interest credit and debt cycle that is hard to reverse.
4. You have multiple cards and you’ve reached your credit limit.
Juggling payments between multiple credit cards or opening new cards because you’ve maxed out your existing cards, is a sure sign that you are overusing credit cards as a way to balance your over-extended budget.
If you have three or more cards, all with outstanding balances you are not using credit cards they way you should. Credit cards should be used as a means of payment, not as a way of increasing your credit limit and pushing payment deadlines.
5. You are making only minimum payments against your debt.
This is a big one. There are many people who end up filing bankruptcy yet are never in default on their payments. You might think your debt levels are not too bad just because you haven’t missed a payment. However paying only the minimum means you are barely covering the interest and not making any headway to reduce your debt. Couple that with continued use of credit cards and you are moving in the wrong direction.
If you answered yes to any of these warning signs you may want to talk to an expert on how to deal with your credit card debt. Talk to a credit counsellor, or if you debts are more than you can pay, talk to a Licensed Insolvency Trustee about your debt relief options including:
- creating a personal budget and debt reduction plan;
- working out a debt management plan with your creditors for a reduce or even interest-free payment period;
- settling your credit card debt by filing a consumer proposal.