Before
Using the Credit Card you Have
1. Establish
a realistic budget. Before using a
credit card after bankruptcy, try paying cash for a
while. This will help you learn how much money
you need each month to pay the basic necessities.
Don't forget to budget for the payments on any
debts you reaffirmed in your bankruptcy.
2. It is important not to use credit cards to
make up for a budget shortfall. Credit card debt
is expensive. Sometimes credit cards are so easy to
use that people forget they are loans. Be sure to
charge only things you really need and plan to pay
the balance off in full each month. If you find you
are constantly using your card without being able
to pay the bill in full each month, you need to
consider that you are using cards to finance an
unaffordable lifestyle.
3. If you get into financial trouble, do not
make it worse by using credit cards to make
ends meet. If you find that you are using credit
cards to get through a period of financial difficulty,
it is likely that additional credit will only make
things worse. For example, if you use cash
advances on your credit card to pay bills, the
interest due will only add to your debt burden
sooner rather than later.
4. Don't
get hooked on minimum payments.
Credit card lenders usually offer an optional
"minimum payment" in their monthly billing. These
are usually set very low (usually 2% of the balance),
barely covering the monthly interest charge. If you
pay only the minimum, chances are that you will be
paying your debt very slowly or not at all, and you
may think you are managing the debt when you are
really getting in over your head. For example, if you
make only the monthly minimum payments to pay
off a $1,000 balance at a 17% interest rate, it will take
over 7 years pay your debt! If you are also making new
purchases every month while making minimum
payments, your debt will grow and take even longer to
pay off. This means that your monthly interest
obligations will increase and you will have less money
in the monthly budget for necessities.
5. Don't run up the balance based on a
temporary "teaser" interest rate. Money
borrowed during a temporary rate period of 6% is
likely to be paid back at a much higher permanent
rate of 15% or more. Also be careful about juggling
cards to take advantage of teaser rates and balance
transfer options. It takes a great deal of time and
effort to take advantage of terms designed to be
temporary. Remember that all teaser rate offers are
designed to get you locked into the higher rate for
the long term, because that is how the lender makes
the most money.
6. Avoid
the special services and programs
credit card lenders offer to bill to your card. You
are likely to get many mail offers and telemarketer
calls from your credit card lender about special
services such as credit card fraud protection plans,
credit report protection, travel clubs, life and
unemployment insurance, and other similar offers.
These products are generally overpriced. It is best to
throw out and refuse these offers, or at a minimum,
treat them with a high degree of caution. And avoid
"free trial" offers as you will be billed automatically
if
you forget to cancel the service.
7. If you can afford to do so, always make your
credit card payments on time. Be careful to avoid
late payment charges and penalty rates if you can do
so while still paying higher priority debts. Bad
problems get worse fast when you have a new higher
interest rate and late charge to pay during a time of
financial difficulty. Most lenders will waive a late
charge or default interest rate one time only. It is
worth calling to ask for a waiver if you make a late
payment accidentally or with a good excuse.
8. Know exactly when the grace period ends.
The grace period usually ends on the payment "due
date," which may change every month. Many lenders
do not mail bills until late in the grace period, so your
payment may be due quite soon after you receive the
bill. This also means that the grace period may be
less than a full month, usually about 20-25 days.
Some lenders are slow in posting payments or have
strange rules about deadlines (like payments received
after 10:00 a.m. on the due date are considered late).
Try to mail your payment well before the due date so
there will be no question it gets there on time.
Paying credit cards on time not only saves you
interest and late fees but is a good way to improve
your credit rating after bankruptcy.
9. Beware of unsolicited increases by a credit
card lender to your credit card limit. Some
lenders increase your credit limit even when you have
not asked for more credit. Avoid using the full credit
line as your debt can easily spiral out of control. And
going over the credit limit even by a few dollars can
be very costly as you will likely be charged an overthe-
limit fee and a higher penalty interest rate.
10. If you do take a credit card and discover
terms you do not like: Cancel! You can always
cancel any credit card at any time. Although you will
be responsible for any balance due at the time of
cancellation, you should not keep using a card after
you discover that its terms are unfavorable.
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