Credit lines and credit cards can be an excellent way to build credit and take advantage of perks and rewards. However, to the inexperienced, they can also lead to financial catastrophe if not properly managed. Many of the clients that Groce & DeArmon, P.C. have helped led themselves into the position where bankruptcy was the only option because of their reckless spending habits with their credit cards. Today, the financial experts at Groce & DeArmon, P.C. will discuss some common credit and financial mistakes that can lead to bankruptcy.
Opening Too Many Lines of Credit
For many people, the ideal number of lines of credit is somewhere between 2 and 5. Whether that includes loans or credit cards, juggling more than 5 monthly payments can be a headache and lead to mistakes. Having a few lines of credit is a great way to build your credit score. But opening too many lines can not only be difficult to keep track of but can also damage your score as you can be seen as a high-risk borrower.
Only Making Minimum Payments
While minimum payments can be a little easier to manage on a month-to-month basis, the longer your credit debt exists, the more you will accrue interest. Oftentimes, only paying the minimum will impact the interest instead of reducing the balance. Over time you can end up paying multiple monthly payments without actually reducing the amount you owe. Paying more than the minimum can help you quickly lower the balance and avoid excessive interest accumulation.
Spending to Their Credit Limit
Just because your credit card may have a $5,000 dollar limit does not mean you should spend up to that amount. In fact, you really should not even approach that amount. Keeping your debt to around 20% of your limit will improve your credit score and prevent your debt from spiraling out of control.
Making Large Purchases Before They Are Ready
Probably the number one reason people find themselves in dire financial straits is from making large purchases before they are financially stable. Purchasing a home before you are in a position to afford it is a quick way to find yourself drowning in debt. Ensure that you have a stable income and enough of an emergency fund to get yourself out of trouble before committing to large purchases, and you will be less likely to find yourself in debt.
Think Bankruptcy is Your Only Option? Contact Groce & DeArmon, P.C. Today
If you find that you have accumulated more debt than you can manage, Groce & DeArmon, P.C. offer free consultations. Our consultations will examine the state of your finances and help you decide if bankruptcy is the best option to help you turn things around. Groce & DeArmon, P.C. have a skilled and experienced staff ready to assist you with your financial crisis. Contact us today at 417-862-3706 or toll-free at 1-800-640-3706.