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Six Signs You're Headed Toward Credit Card Trouble

by Barbara Marquand

For many of us, it's hard to imagine life without the convenience of credit cards, which make everything from booking hotel reservations to shopping for gifts online a snap.

Yet because credit cards are so convenient, their use can become problematic if spending isn't kept in check. A credit card should be a tool, not a crutch, and most definitely not a weapon for self destruction. Take a look at your credit card use to see if any troubling patterns are developing. Here are six signs that it's time to shape up your spending habits.

1. Credit card debt: You pay only the minimum due.

Although credit card companies have been increasing the minimum monthly payments on some accounts, the amount is still a tiny percentage of the balance you owe. Assuming the minimum due is 4 percent of a credit card balance, for instance, it would take more than 11 years to pay off $5,000 at 18 percent interest if you paid only the minimum due. Meanwhile, you'd rack up more than $2,800 in interest.

2. You've made at least one late credit card payment.

Late payments can lower your credit score, and, starting February 22 under the new credit card reform rules, your credit card company can hike the interest rate if you're more than 60 days late on a payment. (You'll have the option of canceling the card, and the company will have to lower the rate in six months if you make all subsequent payments on time.)

3. You're using credit cards just to get by.

It's time to take a hard look at your budget if you're charging groceries or the rent because you don't have enough cash to pay your bills.

4. You've maxed out your cards.

Maxing out your cards hurts your credit score. Part of your score is based on your credit utilization ratio--the amount of credit you use compared to your available credit. Experts recommend keeping your credit card balances below 30 percent of your credit limits.

5. You're opening new credit card accounts because you need money.

At this stage, opening more accounts may only lead you deeper into financial trouble.

6. You have so many credit cards you can't keep track of the due dates.

Most people need no more than two or three credit cards. Review your financial strategy if you have several cards.

If you feel swallowed by credit card debt, get help from a reputable credit counselor. The National Foundation for Credit Counseling provides information and referrals to experts.

Published 03/06/11 (Modified 06/27/14)

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