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Managing Credit Card Debt

November 22, 2016


Credit card debt is an important factor in your overall credit health. NASDAQ.com says overall consumer debt is calculated at $3.34 trillion for 2015 alone, and the amount of debt on credit cards (“revolving debt”) that year was approximately $884.8 billion. If you’re looking for ways to manage your credit card obligations, you’re clearly not alone. But how do you manage your credit cards and improve your FICO scores?


There are a variety of strategies to adopt, but first and foremost it is crucial to avoid simply paying the minimum balance. One mistake some credit card users make is not calculating how much interest rates and credit card fees can add up, increasing the overall cost of having the card. And those interest rates can be high; some cards can charge as much as a 20% or more, and that amount adds up quickly.


Unfortunately, it’s not enough to simply anticipate these expenses with your monthly payment and pay only slightly more-it is a far better strategy to pay extra on your monthly payments and begin reducing the “principal balance” or the actual, non-interest total amount you owe. Cutting down that amount is important because carrying too much debt on your cards hurts your FICO score.


The U.S. government’s Consumer Financial Protection Bureau (www.CFPB.gov) says borrowers don’t need to carry a balance on credit cards to maintain a good FICO score. In fact, paying off the balance each month is a far better way to improve your credit. If you must carry a balance, try to keep the amount down to around 30% of your overall limit on that card.


Some people struggle with multiple credit cards. One approach to managing more than one credit card is to pay more on the card with the lowest balance until it is paid off, then begin paying more on the card with the next lowest balance, etc.


In all of this, another factor is crucial; on-time payments. Your credit score is negatively affected by late payments, and there are late fees added by the credit card company. Borrowers who set up auto-deduct type payments every month avoid the issue of being late altogether, and this can be an important factor in managing both your credit scores and credit card obligations.

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