Credit cards have several benefits that can help you better yourself. If used responsibly, they allow you to build a solid credit score, get out of a tight financial jam and enjoy spending perks, such as rewards and discounts. But if you fail to abide by the rule of moderation, you could end up with a pile of debt and a less-than-stellar credit score.
So how do you tell if you are abusing your credit card? There are a few common indicators that you may be headed for trouble.
1. You max out your credit cards
If you frequently approach or exceed your credit card limit, you are likely overextending your finances and headed for trouble. Using your credit card for discretionary purchases or your daily needs that you can’t cover with cash suggests you are living beyond your means. It’s important to get this type of spending under control. For one, you are damaging your credit score by carrying such high limits. Second, if you continue to spend without paying down balances, how will you cope financially when your card is pushed to the maximum limit and you can no longer spend? Lastly, you are incurring additional interest that makes it more difficult to pay off your balance.
2. You are forced to juggle bills
Everyone goes through financial rough patches at times, but if you are forced to prioritize certain bills over others, you are treading dangerously close to a cash flow crisis. Late or missed bill payments will not only lead to fees and penalties, but cause your score to take a hit. When these scenarios occur, it’s crucial to take a hard look at your finances and find spending categories that can be trimmed down. It’s tough to cut out luxuries that you enjoy, such as afternoons at the spa or your favorite magazine subscriptions, but when your credit and finances are suffering, these sacrifices can help you get back on the right track.
3. You frequently open new lines of credit
Having one or two credit cards is common. Having several traditional and retail credit cards may signify a problem. It’s tempting to open new lines of credit to receive a large discount or perk in return. But trying to juggle several accounts can be confusing. In addition, it may seem harmless to make small charges on each credit card. However, a small $50 charge on six different credit cards quickly adds up, and can balloon out of control over time.