My parents used to tell me, “Sometimes the best lessons in life are the ones you learn the hard way.” Makes sense, because you’ll never forget what you learned. But when it comes to money, I think it’s usually better to avoid the hard lessons. Easier said than done, right?
And with credit cards, I think the banks don’t really want you to learn any lessons, they just want you to spend-spend-spend. That’s how they make money. And how you get into trouble!
Hopefully you don’t have to learn the hard way. Hopefully you’re one of the smart ones who avoids getting stuck with BIG credit card bills. To help you out, here are 7 lessons most people learn the hard way about credit card debt:
1) Missed payments are very, very costly.
If you miss payment, you get the double whammy – first, you pay a late fee, then you out on any deals you had for low interest rates. And if your card is maxed out, you can also pay an over-limit fee. All of these fees are in the “fine print” you got when you signed up. If you’re late more than once, your rate can go up near 30%, or more. So do whatever you can (ideally, set up an auto payment through your bank) to ensure you won’t be late, even if you just pay the minimum.
2) You can (and should) request a lower interest rate.
Many people just take whatever they get. But you can always call up your credit card company and ask for a lower interest rate. Of course, you won’t always get it, especially if you’ve missed payments or are maxed out. But it can’t hurt to ask. And just lowering it 3-4 percentage points can save you hundreds of dollars. If they say “no”, then wait a month or two and call again.
3) The “teaser” offers are very tempting – and very dangerous!
When money is tight, a 3% – 5% interest rate sounds great. You can consolidate a few of your higher rate cards, and save a bunch of money. Why not? Well, if that’s what you do then it’s a good deal. But if you miss payments, you’ll lose the lower rate quickly. Or if you don’t read the fine print, the transfer fee might outweigh any savings, especially if the “teaser” rate is only for a few months. And if you start using the high rate card you just paid off…well, that’s how you get into DEEP trouble!
4) And the offers won’t stop coming (even when they should).
The banks don’t manage your money for you, that’s not their job. And they won’t look out for you, even if you’re getting hopelessly deep into debt. The offers will keep coming even if you can’t afford more credit. So don’t expect the banks to know when enough is enough. And don’t assume that if you keep getting offers for more credit cards, that you should accept these offers. It’s up to YOU to draw the line and stop digging a bigger hole for yourself.
5) It’s easy to get in way too deep, way too fast.
For some people, credit is like a drug. They can’t get enough. They love the lifestyle that credit offers them. The offers for more are so tempting they’re hard to resist. And usually they’re the last ones to know they have a problem. By then, it’s too late. understand that your balance can compound VERY quickly – especially with high interest rates and fees – and grow faster than a snowball rolling downhill. So read your statements. Know what is going on with your account. And don’t turn away just because pretending you don’t have an issue is easier than facing it.
6) More credit does NOT help you get out of debt.
This one sounds obvious. But some people think of credit cards as income – the more they have, the more they can spend! Pretty crazy, huh? When money is tight, we look for solutions, and getting another credit card is a quick and easy solution. But of course, it isn’t a long-term solution, and actually can take you down a destructive path if you aren’t careful. So if money is tight, stop spending. And don’t get more credit just to help you pay the bills.
7) The credit card companies most likely won’t help you when you need it the most.
If you need help with debt, there are many places to find it. Asking your credit card company for help is probably the least likely to work. They’re in the making money business, not the helping you get out of debt business. And they’re more likely to help those who DON’T need it as much. Those are the ones who pay on time. Those are the ones with the lowest balance. And they’re the ones with the higher credit score. So why help them and not those of us who are desperate? I guess they make more money from those who struggle, and assume those who struggle will still struggle even with a lower payment or interest rate. It doesn’t make sense to me from a customer service perspective, but business is business! So if you need help, contact a debt reduction company or credit counseling program instead.
So, how many of those lessons have you learned the hard way? Hopefully not too many. And hopefully you’ve learned a few tips to keep you from having to feel the sting of a painful lesson about credit card debt!