Credit card debt can be costly and quickly spiral out of control. Interest charges can add to your balance, and habits like relying on minimum payments, making new charges or overlooking relief programs can make your credit card debt cost more. If you’re trying to pay down credit card debt, avoid these common mistakes so you can save money and become debt free faster.
1. Only Making the Minimum Payment
Making the minimum payment on your credit card is technically OK. You’ve paid on time and avoided a late fee, which is good for maintaining your account and a healthy credit score. But credit card interest typically compounds daily, so it can be expensive to carry a balance.
Minimum payments mostly cover interest and don’t move the needle much on your balance. You can keep your head above water with these payments, but your debt shrinks slowly, if at all.
It’s worse if you keep using the card and add to the balance. Even if you stop spending, minimum-only payments could keep you in debt.
Let’s say you have a $5,000 credit card balance with a 20% annual percentage rate. If you only make the minimum payment, paying off the balance will take roughly 23 years. On top of the $5,000 balance, you’ll also pay $7,723 in interest.
“Some people believe it helps your credit score to carry a balance — it doesn’t,” says Mike Sullivan, a personal finance consultant at Take Charge America, a national nonprofit credit counseling and debt management agency.
Instead, try to pay as much as you can above the minimum, ideally at least double the minimum payment. Even small extra payments can reduce your debt timeline and save you on interest. And if you can pay the full balance, then you can avoid interest charges.
Can’t pay more than the minimum? Consider transferring the balance to a 0% APR card or consolidating with a low-interest debt consolidation loan.
[Read: Rewards Credit Cards]
2. Using Your Card While Paying It Off
If you try to empty a sink while the faucet is still running, it will never fully drain — and that’s what it’s like when you spend on the same card you’re trying to pay off. Purchases add to your balance, and every new charge increases the amount of interest you owe. That increases the amount of time it takes to pay off your debt.
“Credit card interest each month is calculated by daily average balances,” says Ashley F. Morgan, a debt attorney in Virginia. “As you continue to use the cards, you are racking up more interest.”
It’s best to stop using a card with a balance until it’s fully paid off. Remove the card from your physical and digital wallets. Instead, use a debit card, prepaid card or a different credit card that you pay off in full each month.
3. Forgetting 0% APR Expiration Dates
Using a 0% APR offer for balance transfers or purchases can help you save on interest during the promotional period. But when the 0% offer expires, your interest rate jumps to the regular rate — which could be costly.
Deferred-interest promotions — sometimes called special financing offers — can be especially problematic. With a regular 0% APR offer, you’ll only pay interest on the balance that remains after the promotional period. But with deferred interest, you’ll pay all of the interest retroactively if you don’t pay the balance in full by the deadline.
As soon as your 0% APR promotional period begins, calculate how much you need to pay each month to clear the balance before interest applies. It may be a good idea to set a reminder on your calendar at least a month before the promotion expires.
If you’re unable to pay off the balance before the 0% APR period ends, consider rolling it onto a balance transfer card. You’ll pay a 3% to 5% fee to do so, but that could be lower than the interest charges you’d face after the 0% APR expires.
[Read: 0% Introductory APR Credit Cards]
4. Not Negotiating a Lower APR
Credit card interest rates may be more negotiable than you might think. If you ask your credit card issuer for a lower APR, you may get it — especially if you’ve consistently made on-time payments and improved your credit score since you’ve opened the card.
“It is always appropriate to ask for a lower APR,” says Sullivan. “Credit card companies want to keep you as a customer.”
Even a small drop in your APR could make a noticeable difference if you’re carrying a large balance, so it’s worth it to ask. The issuer could say no, but you won’t know until you make the request.
Contact your credit card issuer and ask if you qualify for a lower APR. Be direct but polite, and point out your cardholder loyalty, on-time payments and credit score. If you’re not approved for a lower APR, ask what you can do to qualify for a better rate in the future.
5. Chasing Rewards With a Balance
Earning cash back, points or miles on your credit card purchases is enticing, but interest charges can quickly wipe out the value of rewards if you carry a balance.
Rewards can’t help you save if you’re paying interest. The math doesn’t work in your favor if your interest rate is 20% while you earn 2% cash back.
“Don’t play the points game if you’re going to carry a balance,” says Jay Zigmont, certified financial planner and founder and CEO of Childfree Wealth, a planning firm for people without kids. “While it can be attractive to chase points or miles, it only works financially if you pay off your card completely each month.”
If you’re carrying a balance, stop using your card for new purchases, even if it earns rewards. Focus on paying down the balance, and once you can pay your balance in full each month, then you can maximize your rewards.
[Read: Best Credit Cards.]
6. Not Asking for Help
Credit card debt can result from overspending or a financial hardship, such as job loss, family crisis or a medical issue. If you’re falling behind on payments because of a setback, your credit card issuer could offer you assistance.
Many credit card issuers have temporary hardship programs that can be used to lower your interest rate, reduce minimum payments or waive fees. Your account may be frozen, but taking a hardship offer can make your debt more manageable while you get back on your feet.
“Hardship plans with reduced interest and payments are a legitimate strategy for consumers who have a real hardship but expect to recover,” says Sullivan.
Contact your issuer as soon as you experience a hardship, and be ready with documentation, such as a termination letter or medical bills.
If you’re struggling and need more help than what an issuer’s hardship program can offer, there are other options. A nonprofit credit counseling agency can offer a free, in-depth debt analysis, says April Lewis-Parks, director of financial education at Consolidated Credit.
“You might be eligible for programs that can get you out of debt for good, but if nothing else, you hang up the phone with a complete budget of everything you earn and spend,” says Parks. “After all, you can’t get out of debt unless you know where your money is going.”
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6 Mistakes That Make Your Credit Card Debt Cost More originally appeared on usnews.com
