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Credit cards can seem like a lifeline when money gets tight, especially if you use them for everyday necessities like groceries and gas. Plus, they earn rewards and provide high levels of security for financial transactions.
But there are times when using credit cards can do more harm than good. Thanks to their high interest rate, credit cards can turn into a downward spiral of debt pretty quickly. It’s better to realize you may be losing control of your spending sooner rather than later so you can course correct.
Here are three signs you shouldn’t be spending so much on your credit card.
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1. You are only making the minimum monthly payment
If you’re only able to make the minimum monthly payment, it could mean you’re overspending on your credit card and not living within your means.
The ideal way to use a credit card is to use it and then pay the balance off in full every month. This means you only charge what you can afford to immediately pay off. If you cannot do that, you are spending too much on your credit card. It also means that you will be paying interest charges — and with interest rates rising, adding interest charges to only making the minimum payment means your balance will continue to grow and can lead to debt.
2. You already have high levels of debt
If you’re struggling to balance payments for a car note, student loans, mortgage payments, or personal loans, credit card payments could tip your budget into the negative.
For example, when I owned my home, I chose not to have a credit card. When I was renovating my home and needed a bathroom sink or washer/dryer, I used my dad’s Home Depot card, which had 0% interest for a year so I had time to pay it off without interest.
If you think you should take a break from credit cards, too, consider shifting your spending to debit, even temporarily. Debit cards won’t let you spend more than you have in your checking account, and won’t let you continue adding expensive debt to your plate. Just make sure you know how much money you have available so you don’t overdraft!
Debit cards won’t provide the level of rewards you see with credit cards, but there are options that pay cash back.
3. You are missing payments
This is a huge red flag. Missing payments points to an affordability issue that you must take care of immediately. When you miss payments, you will incur a penalty in more ways than one.
In addition to paying interest on the balance, you might also have a late fee applied to your account, and — what could be considered the worst consequence — is a late payment reflected on your credit report. A late payment to your credit report will live there for seven years and could drop your credit score as much as 100 points.
If you find yourself missing payments or having to make payment arrangements with your credit card company, that’s a major indicator that it is time to pull back from spending on your credit card.
Remember, credit cards should not be viewed as an extension of your income. They’re tools that require management, responsibility, and discipline. Even though bills and expenses are high right now, credit cards can take you into trouble if not handled properly.