Credit cards can be the most flexible tool you have to pay for things, but they’re also one of the biggest lenders of debt.
Here’s how to avoid paying off a card that’s on the verge of defaulting and making it impossible for you to refinance.1.
Use a credit card with the right amount of feesThe card you’re using should have enough fees to cover most of the cost of your monthly bill.
If it doesn’t, it can cost you more than you owe, and that’s when you want to take extra steps to avoid defaults.
Pay off a credit or debit card with as much of the monthly bill as possible in a month.2.
Use it as a first-time borrowerThere’s no guarantee that you’ll get a better deal if you use a credit account, but a better credit score means you can get the best rate, according to the National Credit Union Administration.3.
Don’t be a “debt-banger”Don’t take out a new card and add fees to your existing account in order to pay off your existing balance.
If you do that, you’ll end up with a bill that’s already more than what you owe.
Be responsible for the balance on your cardDon’t add new fees to the account just because you have a card you don’t use regularly, like the one you recently bought or the one that’s been in the family for years.
Rather, you should take out the card to repay a debt that’s not on your credit report.
Get the most bang for your buckWhen you pay off a bad credit card, you’re taking on a high-interest, high-cost debt that could hurt your credit score in the future.
Instead, use the money you save to pay down a debt you have already made and avoid paying any interest.
Take advantage of the annual feeIf you don.t have any outstanding bills and don’t have to repay any, consider using a credit union as your primary financing source for your credit cards.
There are several types of credit unions, and you’ll find them listed on the National Association of Credit Unions website.
Here are a few of the most popular types: American Bankers Association, Inc., American Community Bank, Federal Credit Union, Federal Reserve Bank of St. Louis, National Association Bank of Chicago, and National Association Central Bank.
Use one card at a timeYou can always take out new cards with your existing card balance, but if you don?t have enough balance to make it worth it, try to use one card to refile a new one each month.8.
Don?t put off paying off your cardsIf you want, you can defer paying off the old cards by using a cash advance or line of credit to refiger the card.
If the new card isn?t enough, use your savings and refinance the old card.
Get a bank to refranchise your credit accountThe Federal Reserve requires banks to hold at least 90 days of your current credit card account balance, and if you do, it?s a good idea to take advantage of a credit line or line-of-credit to reframe the card into a line of debt you can refinance for a lower interest rate.10.
Be selective in the types of debt to reforgeIt?s easy to forget that most credit cards are a combination of debt and interest, so it?ll be helpful to think of them in terms of two categories: interest and debt.
The terms interest and credit make it easier to understand what a card is worth when you know what you need to pay back.
In general, interest payments are charged at the rate that applies to the amount you owe on the card, so if you?re on a credit cards balance of $5,000 and owe $3,000 on a card, that?s an interest rate of 0.25%.
You pay back the balance in full each month, so your interest payment is paid on the first $10,000 of the balance you owe that month.
The interest is calculated by subtracting the balance from the principal balance, which is the amount of money you paid in each month to make the card work.
This formula is known as the “interest rate,” which is calculated with the card?s term, interest rate, and the amount that you paid to make this card work in the first place.
Interest is charged on your balance at the time of purchase, so there?s no interest added to the balance each month you use the card for the first time.
Credit cards with the highest interest rates are usually the ones you?ll most likely have to refigure into a mortgage or a car loan, as those terms are usually tied to the highest credit scores you have.
Here are some common questions about credit cards:1.
Does it matter which credit card I use?
If you use one credit card