Why is credit card debt bad

Money is probably already tight if you're already in debt, so freeing up extra cash will give you some breathing room for the long haul.

Whether you use this money to accelerate debt payments, start an emergency fund or invest in retirement. The power of compound interest will start working in your favor instead of against you. Another trap people often fall into is using their credit cards for regular, everyday purchases. Unless you follow a monthly budget and can easily pay your credit card balance in full each month, charging non-discretionary expenses on a credit card can be dangerous.

By keeping common purchases like groceries and utility bills off of your credit card balance, you'll take a major step in getting spending under control. There's no reason to incur interest charges on necessary items that you should buy directly with monthly income with cash, check or debit card.

Credit card rewards are usually worth far less than the extra interest you'll accrue if you can't pay off the money you spend to earn those bonuses. You should also avoid signing up for multiple credit cards, regardless of bonuses. If you already know you don't manage credit cards well, don't add temptation in the form of additional cards. It's also easier to miss a payment deadline when you have more cards than you can manage. Remember, a few late fees or interest payments will quickly obliterate those sign-up gifts or rewards.

You can use your cards more frequently once you have your debt paid off and know how to avoid new debt. As long as you pay your balance in full and on time each month, there is nothing wrong with using credit cards instead of carrying cash or to take advantage of rewards like cash back or frequent flier miles.

Just make sure those purchases fit within your monthly budget. Credit card companies employ tactics like sending checks in the mail, encouraging you to use them to pay bills or to treat yourself to something nice, but they rarely make it clear that these checks are treated just like cash advances. Taking a cash advance is dangerous because you start to accrue interest immediately, unlike regular credit card purchases. To add insult to injury, the credit card company may not consider the cash advance to be paid off until you've zeroed out the balance for your other purchases.

The best thing to do with these checks is to shred them as soon as you receive them, avoiding the temptation while preventing would-be identity thieves from snagging account numbers out of the trash.

Many companies also send a personal identification number PIN shortly after you sign up for a card, hoping you'll use it to get cash from an ATM. Shred that paper, too. Medical bills can be overwhelmingly expensive, especially if you're uninsured.

If you're having trouble paying your medical bills, negotiate an agreement with the hospital or other company to whom you owe money. Don't add to your bills and stress by adding exorbitant credit card interest rates onto them. You should also go through your medical bills a second or third time, making sure they are accurate and you understand all the charges. Some folks get so stressed out or embarrassed by credit card debt they stop opening their bills and pretend there's no problem.

It's obviously a bad approach because, while you're ignoring the bills, the ticking time bomb of interest rates is adding to the debt. In addition, if you miss a payment or two, the interest rate may shoot higher under the terms of the card agreement. You can call card companies if you feel overwhelmed and ask to renegotiate the terms of your agreement.

You may be able to get the interest rate lowered, set up a payment plan, or get some of your debt forgiven. When you contact ACCC for a free credit counseling session, we can help you understand how much credit card debt is bad for your financial situation and help you select the strategy for paying off your debts. The start of your journey out of debt is just an easy phone call away.

Get Started. Are you sure you want to leave? No, return me to the previous page. Here are some good tips :. Other popular options like Afterpay may be a better choice than a credit card. Or your car suddenly needs major repairs. If you have an emergency fund, you can use that money rather than find yourself back into debt on a credit card that charges high interest rates. It's also helpful in challenging times, like if you were to lose your job or need to move location. Using a credit card is not necessarily a bad thing.

Credit cards can make it easy to make purchases, and some have rewards programs that can provide you with a bonus at the end of the year. Make a plan to eliminate your debt using our 4 things you need to know about credit card debt, and get yourself on the road to a better financial picture.

Courtney has over 10 years of experience in the financial services industry and understands the finance space outside of financial planning. Other Locations Cottesloe : Duncraig : Joondalup : Karrinyup : Success : Victoria Park : E: info financialframework. Monday to Friday am - pm Our Services. If you want a good laugh — or scare — check out the minimum payment warning on your credit card statement. It states the number of years and months that it will take for you to pay off your credit card debt making only the minimum payment.

If you have credit card debt, always pay much more than the minimum to save time and money. Education debt is supposed to help you get a job with a better salary than you would get with a high school diploma. And business debt can be a great investment if the business succeeds.

Of course, every investment requires taking some risk, but calculated risk can result in large rewards. It may be used for depreciating purchases — like home furnishings, clothing items or gadgets — or consumables, such as food and gasoline.