Credit Card Debt - Learn to Manage It, Not Eliminate It

The media tells us that credit cards are tools of the devil, but the reality is quite the opposite. Credit cards, if used effectively, can actually be tools of financial freedom, and rather than making you a slave to interest rates, effective credit card usage can actually lower your interest rates to 0% - even if you have bad credit.

When You're in Over Your Head

If you are unable to pay the monthly minimums, struggle to do so, or have already defaulted on your credit card, then the tips and strategies presented throughout the rest of this article do not apply to you - not now, anyway. Contact a credit counselor and a debt management service to see which option is right for you. Once you are back on your feet again, don't shy away from those first new credit card offers - you will need to rebuild your credit rating, and you can't do that without showing that you can use credit responsibly. Get a credit card and this time use it to your own benefit, not the credit card company's.

Responsible Credit Card Use = Financial Freedom

Since most articles detail the evil that credit cards do, let's take a moment to reflect on how good they can be. Without credit cards, you would have to carry around a lot more cash, which would make you much more susceptible to theft. Stolen credit cards are virtually worthless because you can easily call to cancel your cards, and even if a thief uses them before you get a chance to cancel them, you are not responsible for the charges, and the thief is more easily traced by the authorities. Criminals are dumb, but they're not that dumb, so they don't normally waste their time trying to use stolen cards. As more and more people carry plastic instead of cash, this decreases the attractiveness of purse snatching and other, more violent robberies. Think about it: Credit cards make people physically safe! You're also more financially safe, because you can always deny fraudulent charges or file a chargeback. You may not always be able to do this with a debit card, and besides, once a debit card is used, the money is zapped out of your account. With a credit card, nothing is really paid for until your bill is paid. Credit cards have allowed millions of Americans the freedom to purchase items that they otherwise would not have been able to, which has resulted in an unprecedented economic boom in the nation. While it's true that many people have gotten over their heads in debt, those who have been able to use credit cards responsibly are much better off today than they were in the days before credit cards, as is the country as a whole.

How to Get 0% Interest Rates - Even if You Have Bad Credit

There are two ways you can use credit cards to get 0% interest rates from your credit card company, but first let's examine how valuable 0% loans really are. Inflation runs at about 3% per year, so a nominal interest rate of 3% would actually be a real interest rate of 0% - it would be just enough to keep up with inflation. Therefore a nominal interest rate of 0% - which you can get, even if you have bad credit - is actually a real interest rate of negative 3%; or in other words, your credit card company will be paying you 3% interest. In this way, you can turn the credit card game on its head! The first way to do it is the most obvious: Transfer your existing balances to a new card that offers a 0% introductory rate. Many times these rates last for as long as a year, during which time you can make the minimum payments, pay down your debt, and enjoy a real 3% return on your money. When the introductory rate runs out, you can possibly transfer the balance to yet another new card with a 0% introductory rate! Of course, if you have bad credit, you will only get accepted for so many new cards. Nevertheless, there is a way to get guaranteed 0% interest rates, no matter how bad your credit - simply pay your balance in full each month. By doing so, you can make new charges on your card and get a 1-2 month "loan" at 0% interest. For example: Let's say you have a card with a $3,000 limit. You want to buy a new loveseat for $2,500, but you would rather leave your cash in a money market account that is earning you 5% interest. Your credit card statement comes on the 10th of the month, and the bill is due on the 25th. Assuming you were carrying a $0 balance (paying off your card in full each month), you could make the purchase on the 11th, and payment would not be due until the 25th of the following month - during which time no interest would accumulate. That's a 45-day, interest-free loan - which is an especially good deal considering that even banks have to pay 5.25% on one-day loans!

Some Final Thoughts

Responsible credit card usage is the cornerstone of financial well-being for most middle-class Americans. While you get the most benefit from your credit cards by running up the balances as high as possible each month before paying them off, this is usually not the best idea. After all, one of the most important benefits of having a credit card is the availability of credit to cover unexpected expenses. Furthermore, using a high percentage of your credit at any given time can make your credit rating lower, temporarily. The important thing is to be on top of your finances and never let yourself fall into unmanageable debt. If you do, seek a credit counselor or debt management agency to help you get back on track so that you can once again live your financial life to the fullest.