Make Use of Your Credit Line and Payoff Your Credit Card

Pretty much everyone I know has some form of credit card debt. To be honest you should never carry a balance on your credit cards. Next to payday loans, credit cards have one of the worst interest rates you can get and they can increase if you are irresponsible with them. On average credit cards have interest rates around 18.9-19.9%. If you are delinquent and don’t pay on time several times, this interest rate sometimes goes up.

How Important It is to Payoff Your Balance Every Month

Paying off you balance every month is probably one of the most important things you can do to improve your credit rating. It tells credit card companies as well as credit rating companies that you are a responsible credit user and that if a financial institution is considering lending you money, you are more likely to pay them back in comparison to others.

If you don’t pay off your monthly balance on your credit card, it can be your first step to financial hell. If you don’t even pay the minimum balance on your credit card, despite what others say, it is bad for your credit. Even if you do pay the minimum balance on your card, you will be charged interest daily for whatever balance you carry. So even if the credit card interest is 18.9%, because you are paying daily interest, the reality is that the interest rate that you are paying is much higher.

In addition, if you don’t pay off your entire balance, you will be charged for the entire balance of your previous month’s credit card balance, not just what you owe. It’s really scary how credit card companies charge interest. Furthermore, as you hold off paying off the balance you start seeing residual interest, interest that is carried over from before for not paying the balance.

What to do to make sure you Pay Off the Balance on Your Credit Cards
I’ve give ideas before in my previous articles about credit cards. (Read “Make Credit Cards Work For You!” & “Becoming a Smarter Credit Card User”) A new idea that I can give you is to utilize your line of credit, if you have one. A line of credit is basically a guranteed loan by the bank for a set amount of dollars at a set percentage. Line of credits are great because you can control how much you spend without having a crazy interest rate. Depending on your credit, your line of credit interest rate could be as low as prime or prime + 1%.

Now in Canada, the current prime rate (and interest rates are at record lows by the way) is 2.5%. So if you have a prime + 1% rate then you have a 3.5% interest rate, that’s nothing compared to the 18.9% or 19.9% interest rate you will be paying on your credit cards. In addition, for your line of credit, you usually only have to pay for your interest and there is no minimum balance that you have to pay monthly. You also won’t have to pay any other hidden fees or residual interests as you would with credit cards and as long you pay the interest monthly, your credit rating will stay intact.

Mo2 Thinks
If you have a line of credit but are carrying a balance on your visa card, pay off your visa right away by utilizing your line of credit! It’s much smarter financially and it’s also better for your credit rating. You have to minimize the amount you carry on your credit card at all costs. If you don’t you seriously will be facing financial failure and I just won’t allow that! Take control of your finances, and be sure that you aren’t over spending or buying things that you don’t need on your credit card.

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