Will Credit Cards Reduce Your Debt?
Of all the debt owed by American consumers, perhaps the most toxic is credit card debt. With the average card carrying an annual percentage rate of just under 17 percent as of February 2011, according to the website IndexCreditCards.com. charging expenses to your credit card will not reduce your debt. There are exceptions, such as debt consolidation from transferring balances from high-interest cards to lower-interest cards, but as a rule, using a credit card for expenditures will not lower your debt.
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Credit Card Debt
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Using a credit card to make purchases, in general, will not help you with reducing your debt. In fact, for millions of Americans, excessive credit card purchases are what got them into debt in the first place. With credit card interest rates typically ranging in the teens or higher, debt tied to credit card usage will increase your debt in comparison with making purchases with cash or using funds from a lower-interest loan such as a second mortgage or line of credit. In simple terms, credit card usage can only increase your debt, not lower the amount.
Consolidating Debt
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According to creditcarddebt.org, consolidating debt through transferring balances from high-interest cards to lower-interest cards is one way to use credit cards as a way to save money. Through this method, you transfer a balance from a high-interest card and place it on a card with a low-interest rate. Commonly, balance transfers come with a transfer fee and you also have to watch for promotional rates and make sure you can pay off the balance transferred before the promotional rate expires. As a rule, though, balance transfers can help you save money in the long run.
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Credit Card Usage
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According to the Federal Trade Commission, limiting your credit card usage will help alleviate your debt. Debt from credit cards builds up quickly and, if you can curve your dependency on credit cards, you can start reducing how much debt you will accumulate. If you must use a card, pick a card with a lower rate and use that card only sparingly or for emergencies.
Eliminating Debt
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To start eliminating debt, the Federal Trade Commission recommends beginning with a plan. Examine all your expenses and develop a budget. Include in your budget the minimum payments for all of your debts and include as much cash as you can spare to pay down that debt, picking one account to pay off at a time or perhaps dropping small amounts every week on debt. Whatever method you choose, stick to the plan and do not deviate until your debt begins to fade away.
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References
- Photo Credit 3D Credit Card Concept Cutting Credit Card Carrying Scissors image by Scott Maxwell from Fotolia.com
