Credit cards offer numerous benefits to cardholders. The possibility of redeeming rewards, consumer protection, and a chance to build one’s credit score are just a few of the several benefits that it could offer.
However, it is rather ironic how credit cards have led some people to financial misery. Irresponsible usage is mostly to blame, but choosing high-interest cards certainly does not help.
As a result, people need to be well aware of how to avoid high-interest debt traps. To this end, this article will address this topic. Make sure that you keep reading to stay informed.
Strategies for Avoiding High-Interest Debt Trap
Opting for a high-interest credit card can be very detrimental to your financial state. This is especially if you find yourself having to carry over unpaid balances after the issuer’s set deadline. The effects of the high interest can be financially draining and this is why you should avoid its debt trap. To make sure of this, here are some proven strategies:
Opt for a Low-Interest Credit Card
Frankly, it does not get any more straightforward than this. A high-interest option should be avoided at all costs. This is regardless of the enticing rewards that may come with it. For the record, interest rates should be very high on the list of your considerations when choosing credit cards.
Making low-interest choices would require doing your due diligence by studying the various options and comparing them. It is worth knowing that there are websites that aid this course. These websites regularly review and compare the offers of various issuers.It would be a smart move to make use of such websites. You can visit https://www.kredittkortinfo.no/lav-rente/ for more information about this.
There are several yardsticks for comparing the various issuers reviewed on this kind of website. However, the Annual Percentage Rates (APRs) should be one of your major yardsticks for your comparison.
It is understandable if some readers are asking about the fate of cardholders already in this high-interest debt trap. Well, a balance transfer is one of the things that they can explore. It simply means transferring the existing balance to another credit card.
However, there are situations in which this is a wrong move. It is usually best to do this when taking advantage of promotional periods by the new issuer. For example, this could be a zero percent annual percentage rate for new cardholders.
Make Timely Payments
Late payments are not good for your finances. It triggers interest rates and possibly other late payment fees which significantly but unnecessarily increase the cost of using credit cards.
Furthermore, it paints the picture of you not being a good borrower. This is considering how it directly impacts your credit score. This can reduce your chances of getting other credit lines or getting them with fair terms.
Make Full Payment
Issuers usually set a minimum payment limit. This is the amount you are expected to repay monthly at the very least while using a credit card. It ensures that you fulfill a part of the agreement with the issuer.
However, it does not usually spare you the interest rate trouble that comes with not making full payment. So, try as much as you can to make full payment instead of sticking to the minimum payment limit.
Be Careful of High-Risk Transactions
Some transactions are more high-risk than others. A common one is using your credit card for cash advances. It is more costly than using this payment solution to fund online purchases, for instance. So, you should steer clear of using it for cash advances. It would be a lot better to use debit cards or other alternatives instead.
By the way, high-risk transactions are not only meant in the context of increased cost. It is also meant in the context of security vulnerabilities, among other things. On the whole, some of the things that can be considered high-risk transactions using credit cards include the following:
- Gambling transactions
- Unsecured online purchases – This is especially if you have very little or no consumer protection feature
- Another loan payment
- Peer-to-Peer (P2P) payment
- Registration for auto-renewable free trials
It is highly suggested that this payment solution is not used for facilitating the aforementioned transactions. Caution is seriously of the essence if they are.
Be Aware of Introductory Rates
The competitive nature of the credit market is a reason many issuers offer mouthwatering offers. This is especially to new cardholders. One such is introductory rates which significantly reduce the interest rate that applies at the initial period of being a cardholder.
However, they are only temporary and cardholders must come to terms with this fact. Failure to do this can lead to financial troubles using the credit card.
This is as certain penalties that were waived in the initial period will begin to kick in. So, it is essential to understand how introductory rate terms differ from normal rate terms.
Proper Monitoring and Management of Credit Card
One of the advantages of this payment option is that it allows people to keep track of their spending. This is especially possible given how accounts can be tracked and managed online.
However, this can only be an advantage if cardholders make use of this feature, which they should. To this end, it is important to:
Regularly Review Credit Report
Doing this enables cardholders to have a better understanding of their spending patterns and what needs to change. It can also help in identifying possible errors in the report (if any), which will have to be reported.
Have an Emergency Fund
Credit cards are not always the best for emergency spending even though it may seem like it. As a result, cardholders need alternative financial safety nets to cater to emergency expenses. This reduces the chances of having accumulated high-interest credit card debts.
Professional Guidance
Some professionals can offer situation-tailored professional advice on subjects like this. Seeking their expert opinion can be a very smart move. This is especially for those who are neck-deep in high-interest credit card debt trouble. These financial advisors can play a huge part in developing practical plans for coming out of these debt troubles.
Wrap Up
High-interest credit cards should be avoided at all costs as they can quickly lead to financial misery. In light of this, proven strategies for avoiding high-interest debt traps have been discussed here and should be taken seriously.
Furthermore, those who find themselves in this debt trap should be rest assured that they can come out of it. This is provided they do the needful and exercise patience. The strategies shared here will also prove helpful for such cardholders.
