Credit Cards and Navigating Debt

Credit cards are widely used, marketed as convenient tools and a way to build credit. But the way they are structured can also lead to accumulating debt, especially if you’re not able to pay off your full balance each month. Interest charges, fees, and delayed transactions can make it harder to keep track of spending or understand how much you’re really paying over time.

Understanding how credit cards work and knowing what to look out for can help you decide how and when to use them in a way that feels right for your situation.
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Credit Cards at a Glance: How They Work and What to Watch For

Credit cards can offer certain benefits, such as convenience, fraud protection, and the chance to build credit. Some cards also offer rewards such as cash back, travel points, or purchase protection. These features can feel appealing, especially if you're trying to manage day-to-day expenses or handle emergencies.

At the same time, it’s important to understand that credit cards are designed in ways that can make it easy to overspend or carry debt from month to month. Unlike debit cards, credit cards allow you to spend money you don’t yet have. If the full balance isn’t paid by the due date, interest begins to build on what’s left and often continues to grow each month, even if you're making monthly payments.
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In a 2023 report, the Consumer Financial Protection Bureau noted that more than half (55%) of active credit card users carry a balance, and the vast majority of interest paid comes from people who revolve debt month after month. Many credit cards are structured to make this cycle easy to fall into. Interest charges build on unpaid balances, and small purchases can quickly add up, especially if your statement doesn’t show interest fees until the end of the month.

In addition to interest, credit cards may also include other fees, such as:

• Annual fees
• Late payment fees
• Balance transfer fees
• Foreign transaction fees

Even if a card seems to come with strong benefits, it’s worth reviewing the terms carefully. Not all features are worth the cost if they’re encouraging spending that’s hard to track or keep up with. Reviewing your monthly statements can help you see how much you’re paying in interest or fees and whether the card is still meeting your needs. Being aware of how much you are actually spending and how much you are benefiting can help you use credit cards in a way that feels more intentional and sustainable.
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Managing High Credit Card Balances

Carrying high credit card balances can happen for a variety of reasons, including emergencies, job loss, medical bills, or everyday expenses that slowly add up over time. Here are a few things to consider in helping to keep your credit card balance manageable:

• Balance transfers: Some cards offer promotional 0% APR for a limited period. This can give you time to pay down your balance without accumulating new interest. Make sure to understand transfer fees and pay off the balance before the promotional period ends.
• Pay higher-interest balances first: Focus on paying down cards with the highest interest rates to minimize what you spend on interest overall.
• Set up notifications: If it’s hard to keep track when juggling multiple cards or managing everyday expenses, it might help to set up regular reminders.
• Set up automated payments: Regular payments help you avoid late fees and keep you on track. But please keep in mind that making only the minimum payment each month can make it difficult to pay down a balance. Interest continues to build on what’s left, and that balance can grow over time. If possible, try to pay more than the minimum to reduce what you owe faster.
• Debt consolidation: Consider combining multiple debts into one loan with a lower interest rate. Review the terms carefully.
• Budgeting: Understanding what you owe and how much you are able to pay off is an important step in setting up a plan. Budgeting tools, even simple ones, can help you see what’s going out, what’s coming in, and where there might be room to adjust or prioritize payments.
• Consider what charges you use your credit card for: There may also be times when you can pay off a purchase right away, and other times when it makes more sense to spread it out in payments. That flexibility can be useful, but if a balance is already outstanding, even small new charges can lead to growing interest or additional fees, especially when only the minimum payment is made.

Be Cautious of Quick-Fix Solutions

When you're feeling overwhelmed, it can be tempting to look for fast solutions. However, it’s important to:

• Avoid companies making big promises: Be wary of companies that promise to "erase" your debt or settle it for pennies on the dollar. Many of these services charge high fees and can leave you in a worse financial position.
• Know your rights: If you're contacted by debt collectors, remember that you have legal protections under the Fair Debt Collection Practices Act (FDCPA). You have the right to request written confirmation of the debt and to fully understand what you're being asked to repay.

Consider Asking for Support

• Talk to a credit counselor: Certified nonprofit credit counselors can help you review your full financial situation and create a personalized plan. They may even be able to negotiate lower payments with creditors.

• Hardship programs: Some credit card companies offer temporary relief programs that can lower your payments or interest rates if you're facing financial hardship.

If you're interested in learning more about how credit works and how your credit score is calculated, check out our Improve Your Credit Score resource on MyMoneyPath.

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