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Three Signs You’re Ruining Your Credit

Published October 15, 2014

what's the deal with credit card debt?Debt is like the unwelcome house guest who never wants to leave. It’s like the box of old smelly shoes in the corner of your garage that you can’t seem to give away. It’s the person at dinner who eats with their mouth full and always wants seconds.

The thing about debt is that it happens over time. It creeps up on you. You might even ignore it at first, but the warning signs are there, and before you know it, BAM! It’s got you.

And once the icy talons of debt sink in, it’s hard to get free.

Is your credit in good standing? Do you know what your credit score is? If your answer was anything other than a resounding “Yes!”, then you might want to take a look at three early warning signs to see whether or not you’re on the fast track to racking up more debt than you can handle.

Warning Sign Number 1: You Use Credit Cards Not Sometimes, All the Time

There was a time not long ago where people used cash as their sole means of purchase. Those days, however, are long gone. More and more people are using credit cards as their only means of tender, which, pardon the pun, can prove costly.

A study by Dun & Bradstreet found that people who only use credit cards spend an average of 12-18% more than people who only use cash. The reason is simple: with cash, you can actually see the money leaving your wallet, but when it comes to credit, you’re free to spend and spend… that is, until you receive that bloated statement at the end of the month.

If you’re using credit cards for each and every purchase—regardless of how expensive or inexpensive it may be—take a step back and start making the transition to using cash. You’ll have a much better idea of how much you’re spending, and won’t have to worry about all those bone-chilling credit card statements at the end of the month.

Warning Sign Number 2: You Don’t Know What Your Credit Score Is

Navigating your credit report can be tricky, but that doesn’t mean you shouldn’t try. The first step to improving your credit is knowing what to improve.

There are a variety of different credit scores out there, but the most common is the FICO. Under a FICO score, your report is broken down into five parts:

  • Payment History
  • Outstanding Debts
  • Credit History
  • New Credit
  • Credit Currently In Use

Experian, TransUnion, and Equifax are the three major credit reporting agencies, and you’re entitled to a free credit report from each agency every year. Take a look at out our Credit Analysis page for more information on how to check your credit score.

Warning Sign Number 3: You’re Only Paying the Minimum Balance–If You’re Paying Anything at All

Are you paying the minimum credit card payment every month? If you answered yes, congratulations. Now here’s the bad news: that minimum payment isn’t going to help you get out of debt anytime soon. In fact, it’s only going to prolong your payments, which means you’re going to be paying much more over a much longer period of time.

And you thought you were doing so good…

One of the biggest mistakes people make is thinking that paying the bare minimum is helping them get out of debt. It’s not. Instead, all is does it prolong how long you’re paying that debt off.

Paying More to Save More

I’m about to show you the single greatest trick to paying off your debt. Are you ready? By adding $10 a month to every payment, you’ll be able to save thousands, and you’ll be able to get out of debt faster.

An article published on The Street did an amazing job illustrating this. Here’s what it said:

Assume you have a credit card balance of $1,500 and an APR of 18%.

By paying just the minimum payment due each month:

Total Minimum payment: Initially $37 per month
Time it will take to get rid of debt: 160 months
Total interest charge during payback period: $1,792.52

By paying $10 more than the total minimum due:

Monthly payment: $47 (initial $37 due plus $10 extra)
Time it will take to get rid of debt: 44 months
Total interest charge during payback period: $555.70

As you can see, by adding just $10 to your bill every month, you’ll cut your time spent in debt and slash your interest by three!

Knowing what the warning signs are and spotting them early will help you stay on top of your debt. But if you already follow the above-mentioned tips and are still feeling the sting of bad credit, head over to our Credit Counseling page, or give us a call to see how you can improve your finances.


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