Millions of people in the U.S. rely on credit cards. They can be a useful tool when emergency expenses come up. Nonetheless, the debt accrued on credit cards must be paid back, often with significant interest.
Credit cards are a common source of debt and they can lead to financial troubles and bankruptcy. That’s why it’s important to separate fact from fiction. Here are some common misconceptions about credit card debt.
Paying the minimum is enough
Credit cards usually have a minimum monthly payment. Consumers often feel like if they pay the minimum, they won’t get into further debt. Nonetheless, minimum payments often only cover the interest. The overall balance doesn’t go down, and with compounding interests, it can actually increase. It’s important to try and pay as much as possible each month to avoid getting further into debt.
Closing old accounts improves your credit score
It has often been suggested that closing old credit accounts increases credit scores, but that isn’t necessarily the case. Closing old accounts increases your credit utilization ratio, which is a key factor in your score. Some studies indicate that it is actually more beneficial to keep old accounts open unless they have particularly high fees.
Carrying a balance improves your credit score
Consumers often purposely carry a balance into the next bill cycle in the hope that this improves their credit score. However, there is little evidence to suggest that this actually works. In fact, most research points to the opposite. Carrying balances over can worsen your credit score and result in interest adding up. A far more effective way to improve your credit score is to pay bills consistently.
If you have credit card debts, it’s important to have accurate information. Seeking legal guidance will help you come up with a strategy to get your finances back under control.
