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Credit Cards: When to Try Harder, When to Walk Away

Oct. 6, 2014
Credit Card Basics, Credit Cards
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In any troubled relationship, there comes a time when you have to make the choice between trying harder and walking away. If you’ve been having credit card difficulties recently (overspending, dealing with debt, getting hit with fees, etc.), you might be trying to make a similar decision.

In terms of your plastic, how do you know when you should deal with a problem and keep swiping, or quit your card altogether? Take a look at the details below for the Nerds’ best guidance on how to answer this tricky question.

The case for trying harder

There’s no doubt about it: If you can use them carefully, credit cards are a great way to pay for your day-to-day purchases. They’re convenient, safe and accepted almost everywhere. Plus, you’ll have the opportunity to build your credit score and earn great rewards.

For all these reasons, it’s not a smart idea to turn your back on your card without good reason. Under most circumstances, a few behavioral tweaks can probably solve most of the issues you have with your plastic. For example:

  • If you’re constantly getting hit with late fees, set up a calendar reminder to get an alert for your billing due date.
  • If you’re overspending with your card, set up a budget and get into the habit of checking your balance on a regular basis (every other day or so) to make sure you’re sticking to your spending plan.
  • If you maxed out your card on a large emergency purchase and are struggling with high interest charges, consider transferring your balance to a 0% card or refinancing with a personal loan.

In short, don’t throw away your relationship with your card over a few fixable problems. Brainstorm solutions and experiment with them before doing anything drastic.

The case for walking away

The Nerds believe that most people are capable of using credit cards responsibly when given the right tools and information. But sometimes this just isn’t possible, and in these cases, walking away from credit cards might be the right choice.

Here’s why: If you’re constantly paying your bill late or racking up debt, you’re not only paying through the nose in interest and fees, you’re also doing significant damage to your credit score. Since a low score will make it hard to qualify for credit in the future, it’s probably not worth it to continue using (or rather, misusing) a credit card.

Plus, in extreme cases, credit card debt might lead to delinquencies, defaults or even bankruptcy. These could destroy your credit for years, which means nearly every financial action will be difficult or impossible for a long time.

So what are some signs you should walk away from your credit card and turn to cash or debit instead? Here are a few to think about:

  • You habitually charge more on your card than you can pay off in a month, no matter what you do to try to prevent this.
  • You constantly pay your bills late, no matter what you do to try to prevent this.
  • You constantly max out your credit cards, no matter what you do to try to prevent this.
  • You’ve experienced a bankruptcy or other serious financial crisis in the past that was caused by consumer debt.
  • You’ve been diagnosed with a shopping addiction.

Other smart money moves to make today

The decision to continue using credit cards or ditch them completely isn’t always easy. But no matter what you decide, here are a few additional smart money tips to keep in mind:

  • Pay your bills on time, every time. This is the most important thing you can do to achieve and maintain a good credit score.
  • Establish a budget.
  • Build an emergency fund of three to six months of expenses.
  • Establish a retirement savings account (IRA, 401(k), etc.) and aim to contribute at least 10% of your income to it.
  • Check your credit reports at least once per year for accuracy.

And be sure to check back in with the Nerds often – we’re full of tips and tricks for making smart financial decisions!

Credit card question image via Shutterstock