PhotoConsumers are putting more spending on credit cards, which is fine if it's paid off in a reasonable timeframe. But when the balances are allowed to grow, that can be trouble.

The folks at personal finance site WalletHub keep track of consumers' credit card habits and report we all did a pretty good job of paying down balances during the first three months of the year. After a record-setting year debt-wise, we paid off more than $30 billion in the first quarter.

But in the second quarter, the plastic came out of our wallets again. WalletHub reports consumers charged $33 billion in new debt.

"So it’s not a question of whether consumers are weakening financially, but rather how long this trend toward pre-recession habits will last and just how bad it will get," the authors write.

$60 billion in new debt

The report projects consumers will end up adding more than $60 billion in new credit card debt by the end of the year, pushing the total well past the $1 trillion level. This is a problem for three reasons.

First, a lot of credit card purchases are for things that aren't lasting -- things like meals in restaurants or vacations. When these bills are not paid off completely and allowed to build up, you're spending today's and tomorrow's money for things you consumed yesterday.

Second, debt cuts into your monthly cash flow so that you don't have as much money in your budget. If you are making $250 minimum payments on your credit card bill, you can't spend that $250 on things you need this month and you aren't making much progress on paying off your balance.

That brings us to the third problem: the interest rate is-sky high. The average interest rate is over 16% and will go even higher if the Federal Reserve continues to hike interest rates.

Staying out of trouble

The best way not to get in trouble with your credit card is to pay off the balance in full when the bill arrives. That way you aren't adding to your total. If you don't think you can pay for everything in one month, don't charge as much.

From time to time you might take two or three months to pay for a major purchase, like a new water heater, but make sure you pay for all the smaller purchases, plus a portion of your major expenses, with your monthly payments until the balance is back at zero.

If you are already in trouble and struggling to pay off your credit card balance, apply for a balance transfer credit card with a generous introductory period in which you pay 0% interest. If you can avoid double-digit interest for a year or more, then 100% of your monthly payment goes against the balance.

Just make sure you continue to pay for all your monthly purchases -- plus a payment on the balance -- each month.


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