Do you ever feel like you should be taking a break from your credit cards? Sure, credit cards can be a secure, convenient and powerful financial tool, but sometimes we aren’t smart about using them and can find ourselves in trouble.
Many Americans have gone into debt by relying heavily on their plastic. When balances climb too high, some credit cardholders go to extreme measures to avoid temptation. They may lock their cards up, cut them to pieces or even freeze them in a block of ice.
When do you know it’s time to (figuratively or literally) stick your plastic in the freezer? Here are six tell-tale signs you may want to consider taking a break from your credit cards.
1. You’re Shocked By Your Statement
Rather than follow a strict budget, many credit card users will just try to keep track of their charges in their head. Then when their monthly statement arrives, they’re stunned by the size of their bill. If you have found yourself spending far more than you thought you did, it might be time to pause your credit card use until you have things under control.
2. You’re Struggling to Make Minimum Payments
While your monthly credit card statement may not come as a surprise, you might still be overwhelmed by the amount of debt that you are carrying. And if your balance is so high that you are not able to comfortably make even the minimum payment, then it’s definitely time to take drastic actions.
3. You’re Unable to Manage All of Your Accounts
Whether you have one credit card or a dozen, it’s your responsibility to make at least the minimum payment on time, each month, on all of them. Failing to do so can result in costly late payment fees and interest charges. It can also do severe damage to your credit. A late payment is one of the fastest ways to tank a good credit score, and maxing out your cards can do big damage as well. (In fact, it’s generally recommended you keep all your balances below at least 30% and ideally 10% of their credit limits for best scoring results.) You can see how your credit card use is affecting your credit scores by viewing your free credit report summary, updated every 14 days, on Credit.com.
4. You’re Spending More Money to Earn Rewards
Credit cards can offer valuable rewards in the form of points, miles or cash back, and cardholders receive more rewards when they spend more. But since rewards get easily negated by interest, cardholders risk wasting money when they make purchases simply to increase their reward coffers. If you find yourself making unnecessary charges just to earn more rewards (and you can’t pay your balance off in full because of them), it’s a strong signal you should put that rewards credit card on ice.
5. You’ve Lost Your Job
The most important aspect of responsible credit card use is paying your balance. If you’ve lost your job or experienced an interruption of your income for some other reason, your ability to pay for your purchases may be in question. Even though your credit card issuer won’t suspend your account after a job loss, it may be a good idea to do so yourself.
6. You Just Can’t Stop Yourself From Splurging
For some credit card users, overspending happens when they get caught up in the moment. It could be that you find yourself overspending when you go out with friends, when you are on vacation or when you’re shopping on the Internet. If you feel that you can’t keep yourself from going on a spending spree, it may be time to put your cards in the deep freeze.
How to ‘Ice’ Your Cards the Right Way
Before you put your cards on ice, there are a few things you need to do.
- First, understand there’s a difference between just cutting up or icing your credit card and closing the account. If you want to close a credit card, be aware that this could negatively impact your credit score in a few ways. It may be best for you to keep the card open, and just not use it.
- Also, if you have any recurring charges to those cards like a Netflix subscription or your cellphone bill, make sure you move them to another card or continue to make your payments on the current card. Be aware that if your cards are inactive for a while, the issuer could also opt to close the account for inactivity.
- And lastly, just because you’ve cut up the card or stuck it in the freezer doesn’t mean that it’s not still vulnerable to fraud. If you’ve used that card at a business and then that business’s systems are hacked and your info is stolen, thieves could run up charges on the compromised card. So it’s still important to keep a regular eye on your accounts.
Remember, to help pay off credit card debt, you can re-evaluate your budget, prioritize payments (generally by smallest balance or highest annual percentage rate) or look into a balance transfer credit card or debt consolidation loan. There are options available to help you get back in control of your debt.
More on Credit Cards:
- Credit.com’s Expert Credit Card Shopping Tips
- How to Get a Credit Card With Bad Credit
- How Secured Cards Can Help Build Credit