Successfully Managing Your Credit Card Debt

Credit card debt can carry with it a certain feeling of shame. We all feel we should be further along in our careers, and a blot of debt hanging over our heads is a constant reminder that we're not. But in truth, most of us have at some point accumulated some debt—and that's really okay. In fact, having debt does not necessarily mean you'll have a poor credit rating (more on that in a moment).

The highest interest rate you'll ever pay is on your credit cards, so in the pecking order of debt repayment, this should be at the top. If you've chosen a card because it has a low introductory or transfer rate, that's great: it will lower your payments significantly. Nevertheless, there are a couple of traps to watch out for:

Stay tuned for when the low rate ends, because at that point your interest rate will balloon up. If you have a consistent on-time payment history, don't be afraid to ask your card issuer if it will give you a lower rate when the introductory period is over. The issuer won't let you keep the original low rate, but it may be willing to work with you. If it won't, then move the balance over to a lower-interest card (if you have one).

If you make even one late payment on one of those low introductory (or transfer) rate cards, the issuer will instantly cancel that fabulous low rate and unceremoniously bump you up to a much higher rate for the life of the balance. Remember, low transfer rates come with a fee for making the transfer—equivalent to a percentage of the balance you're transferring (this fee varies from card to card)—so carefully compare cards to find the lowest transfer fee. Doing this can save you hundreds of dollars.



Most of us get several new credit card offers a month, but that doesn't mean they're the best offers. You'll do better with a side-by-side comparison of interest rates and perks (such as airline miles) at Bankrate.com and CardWeb.com. Also check Consumer Reports (www.consumerreports.org) for the "10 most consumer-friendly credit cards."

Skip the cards that charge annual fees—credit cards are a very competitive market and you'll always find one with the same low interest rate but without the fee. Cards that offer airline miles or "cash back" only work in the end if you're able to pay the balance in full every month; these cards, I should add, never offer the lowest interest rates and the "added value" will probably be eaten up by the higher rate you'll pay.

Even a few interest rate points will make a huge difference in paying off your balance. How much? Check Bankrate.com's "What will it take to pay off my credit card?" calculator at www.bankrate.com/brm/calc/creditcardpay.asp. It lets you enter your credit card balance and an interest rate, then shows you how long it will take to pay off the debt. Play with different interest rates and you'll see in sobering black and white what a difference a few points make.



If you're making payments on multiple cards, closely monitor when each payment is due, as billing cycles vary from card to card. Miss a due date and you'll not only pay a fortune in late fees—which average over $30 a month—but the late payment will be reflected on your credit report, which will in turn affect your ability to get lower interest rates on other credit cards, car loans, and mortgages.

Earlier, I mentioned that having debt isn't necessarily bad for your overall credit score. That's because it isn't how much you owe, but how much outstanding debt you have relative to your total available credit. You may owe a lot, but that amount may be well below your total credit limit, which is what you want. No specific number qualifies as a "good" ratio, but lower is always better.

Lastly, if you're thinking of canceling an old credit card to improve your credit rating—don't. Creditors look to see not only how well you've been paying your bills, but also how long you've had credit in your name. Canceling an old card may make you look like you're a credit risk when in fact you've had a good, long history of paying your bills on time. <