Credit card expert and CNET Money Expert Review Board member, Gerri Detweiler, got her first credit card after graduating from college -- a Sears card with a $1,000 credit limit that quickly steered her into credit card debt.
Detweiler used the card to buy a couch, and because she still had credit available, she splurged on some other household appliances. But she didn’t understand how credit cards and interest worked, and that left her in a tough spot. She spent years working to pay her balance off.
”By the time I paid it off, the couch had a rip in it,” said Detweiler. “I didn’t have a lot to show for it. But I did learn a lot.”
While she would approach the situation differently with her current knowledge, the experience taught her important money management skills -- how to manage her money. Here are four lessons she learned along the way.
Schedule automatic payments
It may sound obvious, but always make sure youset up autopayfor your credit card -- even if it’s just for the minimum payment. This will keep your account current, and you won’t face a late payment fee. And it can protect yourcredit score from getting dingedfor not paying on time.
“I was on vacation, and I remembered that I had to pay a credit card bill,” she said. She rushed to pay online but later learned that the transaction didn’t go through. She came home to a late fee and accrued interest -- charges that would have been avoidable with autopay. Even though she was able to call the card company and have the fee waived, she still had to pay the interest.
“Life can get hectic,” she said. “Set up minimum payments with autopay so you won’t miss that payment.”
Pay more than the minimum, if you can
While paying the minimum will keep your account current, you’ll need to do more to tackle your credit card debt.
Detweiler didn’t know much about credit card interest rates before her Sears card. So, when it came time to make her first payment, she paid the minimum amount due. Thinking she was doing the right thing, she made minimum payments on time for two years. But after all of that effort, she realized her balance had barely budged. That’s when she knew she needed a different strategy.
“The biggest takeaway for me was that minimum payments won’t help you pay down the balance anytime soon,” said Detweiler.
When possible, pay off your card in full each month to avoid paying more in interest and accruing credit card debt. If you can’t, try to pay as much toward the balance as you can to cut down on how much you’ll pay in interest, she said.
Follow a debt payoff plan
Tackling debt while juggling other bills and savings priorities isn’t always easy. But making a plan can help get you started.
One method Detweiler recommends is to look at the bottom of yourcredit card statements. Some issuers show the monthly payment amount you can pay to eliminate your balance in full in three years. If the amount you see is within your budget, use this number to create a debt payoff plan to tackle your balance.
“You know you’ll have an end date,” said Detweiler. And if you can pay off balances sooner with extra money, aim to pay off the debt with the highest interest rate first. “If not, you’ve at least got a plan that will help you eliminate that debt in three years.”
If the monthly payment you need to make to pay down your balance in three years is a bit of a financial stretch, consider cutting some leisure monthly expenses temporarily to put more toward the balance. You may be able to cancel streaming services, monthly subscriptions or other memberships you no longer use. As for Detweiler, she turned to a side hustle –freelance writing -- and used the extra money from a salary increase at work to put more toward her debt.
But if you don’t have the means to stick to a debt payoff plan, you can reach out to an accredited credit counselor, Detweiler said. They may be able to eliminate or lower some of your debts and can help put you on a plan toward financial success.
Don’t apply for credit just because it’s offered
Even though many credit cards come withrewardsand the chance tobuild your credit, getting a new card isn’t always the smart move.
“Just because they offer you credit doesn’t mean that’s the best option,” said Detweiler. “Had I shopped around, for example, I might have gotten a better deal,” she said. Instead, she was enticed by the store’s offer and didn’t compare her other options.
Store cards especially can seem compelling since they often come with additional discounts or sign-up bonuses -- but they often come with some of the highest APRs in the industry. While that extra 20% off on an item you want may seem tempting, it’s not worth it if you’ll pay hundreds in interest over time.
“A credit card is great for building credit, but only if you pay it on time,” said Detweiler. If you can’t, she recommends sticking with a debit card so you only spend what’s in your bank account.
Other helpful credit card debt resources
These tips can help most people knock out outstanding credit card balances. But if you’re buried in debt, you might need additional guidance. You can find free credit counseling services to help you learn more about your debt repayment options. Some trustworthy options include theNational Foundation for Credit Counselingand theFinancial Counseling Association of America. The Justice Department website also has a list ofapproved credit counseling servicesin every state.
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About Credit Cards and Money Management
I have a deep understanding of credit cards, money management, and debt repayment strategies. I can provide valuable insights into the best practices for using credit cards, avoiding credit card debt, and managing personal finances effectively.
The article you provided highlights the experiences and lessons learned by Gerri Detweiler, a credit card expert, and member of the CNET Money Expert Review Board. Detweiler's personal experience with credit card debt and her subsequent efforts to pay off the balance have provided her with valuable insights into effective money management. The lessons she learned can serve as a guide for individuals looking to manage their credit card usage and debt more effectively.
Lessons Learned from Gerri Detweiler's Experience
1. Schedule Automatic Payments Detweiler emphasizes the importance of setting up autopay for credit card payments, even if it's just for the minimum amount. This practice ensures that the account remains current, avoiding late payment fees and potential damage to the credit score.
2. Pay More Than the Minimum Paying only the minimum amount due may keep the account current, but it may not significantly reduce the credit card debt. Detweiler learned that making minimum payments for two years barely impacted her balance. She advises paying off the card in full each month if possible, and if not, paying as much as possible to reduce interest payments.
3. Follow a Debt Payoff Plan Detweiler recommends creating a debt payoff plan based on the monthly payment amount provided on credit card statements. This plan can help individuals eliminate their balance within a specific timeframe. Additionally, she suggests prioritizing the repayment of debts with the highest interest rates and making temporary adjustments to monthly expenses to allocate more funds towards debt repayment.
4. Don't Apply for Credit Unnecessarily Detweiler cautions against applying for new credit cards without careful consideration. While credit cards offer rewards and the opportunity to build credit, it's essential to assess whether obtaining a new card is the best option. Store cards, in particular, often come with high APRs, and it's crucial to weigh the potential benefits against the long-term costs.
Additional Resources for Credit Card Debt Management
The article also provides additional resources for individuals struggling with credit card debt. It mentions free credit counseling services offered by organizations such as the National Foundation for Credit Counseling and the Financial Counseling Association of America. These services can provide valuable guidance and support for individuals seeking to understand their debt repayment options.
In summary, Gerri Detweiler's personal experience with credit card debt serves as a valuable source of insights for effective money management and debt repayment strategies. By following her lessons and seeking additional resources, individuals can work towards achieving financial stability and managing credit card debt more effectively.
