The amount of credit card debt in the U.S. has been steadily growing. Over 189 million Americans have credit cards, and the total nationwide credit card debt grew to $986 billion in the fourth quarter of 2022.

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Debt traps
I remember my freshman year in college being a little scary but exciting. Orientation was a big day; there was so much to learn and many people to meet.
There were vendors set up to give us much-needed resources to help us start our year off right. I remember one vendor being a credit card company.
We were welcomed to a table where we could fill out an application for our first credit card. And to reward us for signing up, we were given free t-shirts.
That’s right, a measly t-shirt for signing up for possibly a lifetime of debt. My friends and I signed up, clearly not knowing what we were getting ourselves into.
At that time, I knew nothing about credit cards and the possible perils of using them without caution. Some of my friends quickly maxed out their cards and stopped making payments.
Before they knew it, they had destroyed their credit before they even had a chance to build it.
It took me many years to pay off the card and get completely out of debt. Back then, I wish someone had explained how to use credit cards wisely.
Credit cards can be an excellent way to establish credit and build a strong credit profile if used wisely. Otherwise, they can lead to debt, stress, and possibly financial ruin.
I hope that by writing this post, I can help you safely navigate the issue of using credit cards.
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Carrying balances near your credit limit may negatively affect your score
A higher debt-to-credit ratio shows the inability to pay off your credit card balance at the end of the month.
This can cause your credit score to go down. Aim to keep your debt-to-credit ratio below 30%. You can reach this number by dividing your total credit card balance by your total credit limit.
Applying for multiple credit cards in a short time really hurts your credit score
When you apply for credit, the company does a hard inquiry on your credit report. This inquiry will cause a temporary drop and will remain on your credit report for two years.
So, if you have applied for several credit cards in a short time period, your credit score will drop significantly.
Closing a paid-off credit card account may not have a positive impact on your credit score
Paying off your credit card and leaving the account open may help lower your debt-to-credit ratio. It’s the amount you owe compared to the credit limit on your credit card.
I made the mistake of closing an account soon after I paid it off, and my credit score immediately dropped 19 points.
Also, the length of time you’ve had your credit card is important. If the account is one of your oldest accounts, it can show a longer credit history (which is good).
Your debt-to-credit ratio and the length of your credit history are figured into your overall credit score.

Many banks charge hidden fees and use other deceptive tactics
Hidden fees can create a further burden when trying to pay off credit card debt. Banks use them to increase their profits, which means they can keep you in debt longer.
Hidden fees to look for include:
Minimum Finance Charges – These are fees charged to the account when there is very low interest accrued on the account.
For example, let’s say your credit card only accrued one penny in interest for the billing period. The bank may charge a minimum finance charge of $2. So, in essence, you are paying $2 for one penny in interest that you owe.
High Cash Advance Fees and Interest Rates– Many banks charge disproportionately higher cash advance rates than regular interest rates on purchases.
While some banks set their cash advance interest rate based on cardholders’ credit scores, others charge the same rate for all their customers.
The average cash advance APR at the time of this writing is 24.80%. It is much higher than the average APR of 16.03% for purchases. In addition to the high-interest rate, they add a cash advance fee of up to 5%.
My credit card company (a well-known bank) once sent me cash advance checks that I had not requested. The promotional material that came with it very prominently stated that I could enjoy 0% APR on purchases for a year.
They encouraged me to use the checks for anything I needed, including taking a vacation.
However, I had to read the fine print several times to realize that the 0% APR they were touting did not apply to cash advances.
Higher Interest Rates for Late Payments– Banks can charge penalty interest rates as high as 29.99% APR when cardholders make late payments of 60 days or more. These high rates can cause credit card balances to balloon. If you’re unsure what the penalty interest rate on your credit card is or if one exists, contact your bank.
Credit unions offer some of the best rates on credit cards
Credit unions are nonprofit, member-owned institutions that offer lower interest rates on loans and higher interest rates on savings accounts than traditional banks.
How can they do that? Instead of keeping all of their profits, they share them with their members through better loan rates and higher savings account rates.
Credit unions sometimes offer exclusive member-only deals such as a discount on movie or concert tickets and discounts on auto insurance.
Ways to avoid pitfalls when using credit cards
- You can do several things to avoid paying high fees and interest rates on your credit card.
- The first thing is always to make your payments on time. Even if you only make the minimum payment, it will keep you in good standing with your credit card company.
- Review the company’s disclosure documents that come with your card. Make sure you understand their interest rate and fee structure.
- You can also find the information on their website. If you can’t find the information online, call the credit card company and ask them directly.
- If you have consistently made timely payments, call them and ask for a lower interest rate. This may not work, but it doesn’t hurt to try.
- They may also be willing to reverse minimum finance charges. If you have only made one late payment, request that they waive the late fee as a one-time courtesy.
- Avoid taking cash advances except in an emergency. Interest starts adding up as soon as you take the cash advance and can cause your balance to jump very quickly.
- Try to keep your credit card balance to a maximum of 30% of your total credit limit. Going over 30% can negatively affect your credit score.
- Once you pay off your credit cards, keep the account open for a while, allowing you to benefit from a longer credit history and a lower debt-to-credit ratio.
- If you are tempted to use the card and find it hard to resist the temptation, you may need to close the account. It’s best to avoid going back into debt.
- If you need to get a new credit card, shop around to find the best interest rate.
- Consider joining a credit union, which has many benefits, including lower interest rates and the ability to earn higher rates on your savings account.
Final thoughts
Credit card debt can be a heavy burden on your finances if you don’t manage it responsibly. It’s important to know the implications of taking on credit card debt and plan ahead for how you will pay it off.
Remember to only use credit cards when necessary, be aware of your spending habits, and keep track of your payments. Always ensure that you are able to make payments on time to avoid high-interest fees.
Furthermore, if you are struggling with unmanageable credit card debt, consider reaching out to a financial expert or counselor for assistance.
Note: You are entitled to a free copy of your credit report from Equifax, Experian, and Transunion every year – go to annualcreditreport.com.