Credit Cards

You, like many Americans, may be quick to pay for things on your credit card. Credit cards can be a convenient way to pay, so you don’t have to carry a lot of cash, and they allow you to automate and track your monthly outflows.

But if you don’t pay your credit card bill in full even for just one month, your credit card company quickly becomes your lender. What’s more, when you borrow money on your credit card, it is often at unusually cumbersome borrowing terms, at a high interest rate and with big penalty fees. As a result, it doesn’t make financial sense to mindlessly use credit cards to pay for a vacation – or even everyday items – if you don’t have the money to pay off the bills that month. You have to treat decisions about deferring credit card payments the same way you would if you were actively taking out a loan.

Just like any loan, you have to pay careful attention to your credit card interest rate, APR and associated fees and terms. For instance, sometimes credit card companies entice customers with a 0 percent annual percentage interest rate for the first year, but in subsequent years that rate can skyrocket.

If you can’t pay off a credit purchase the same month you make it, you will owe more money to your credit card issuer than you originally spent. Your credit card issuer will begin charging interest – approximately 14 percent on average in March 2010 – on what you owe. You may have thought you were being frugal by, say, using coupons at the supermarket, but any savings will quickly be erased if you can’t pay off your bills.

Here are some borrowing rules of thumb to live by:

• Do not put more on your credit card than you can pay off that same month.
• Carry no more than two credit cards (it’s hard to keep up with more and there’s a correlation between the number of cards one has and the amount of credit card debt).
• Maintain a good credit score by making payments on time.
• Open up every bank and credit card statement.
• Save money even when you’re paying off debt.

Here is a guide to help you track and control your borrowing:

• Pull out your credit card statements.
• Make a list of everything you owe and everyone you owe money.
• Note when you borrowed money during the month and why.
• Look to see that you use a credit card to pay for those items that are part of your spending plan.

If you find that you use your credit card to splurge on fancy dinners or picking up the bar tab, come up with creative ways to curb this behavior. Find different methods to celebrate payday. Go on a jog with a friend or buy something inexpensive, like a fun magazine. Let your friends buy their own drinks.

More information about what happens when you miss credit card loan payments can be found at Loan.com. You can also get credit counseling and advice from the Federal Trade Commission. To deal with education debt, visit StudentDebtHelp.org.