Who’s In Charge: You, Or Your Credit Card?

Americans just love their credit. We use it for practically all of our big ticket purchases these days. And it’s all thanks to low-interest rates and smiling bank managers.

Practically none of the purchases we make today is paid for out of savings. It’s paid for over months and months with lots of interest to boot.

There’s a myth out there right now that the rise of credit is what is responsible for the mass affluence of the 20th century. To a certain extent, that’s right. Credit paid for the consumption boom of the 1990s and the 2000s.

But, of course, now all that has come crashing down. People took out loans to pay for cars and home improvements, but their incomes didn’t rise to pay for this over the long run. Instead, incomes stagnated, and now millions of people are stuck with big debts.

Now things are getting worse for the American consumer. Buying a house or getting on the property ladder is tough when you have debt. Americans are trying to save for a deposit, but at the same time, they have all this debt that they need to pay off. It means that fewer and fewer Americans can afford to live in their own homes and many end up renting.

What’s more, many now have  so much debt that they are wondering how to build credit for the future. In today’s financial system, people almost have to go into debt to be able to improve their access to credit. This then creates a vicious cycle where more debt leads to better credit which leads to more debt. In fact, credit scores are used to price all sorts of debt throughout the economy.

Car dealers, for instance, will price loans according to a person’s credit score. If that person doesn’t regularly go into debt, it can mean paying a much higher rate of interest on their loans. The same applies to mortgage providers and so-called “jumbo loans.” The worse your score, the more you’ll pay.

Here are some tips to manage your credit:

Set Up Mobile Alerts

One of the main things you can do to control your spending is to get credit card alerts. Many people don’t bother to check their credit card accounts regularly.

But now most major card issuers will send out alerts if you are approaching your limit. They’ll also send out alerts to your mobile if they suspect that your card is being used fraudulently.

Get A Reward Card

Another way to manage your credit is to get a reward card. Reward cards sometimes have an upfront fee. But in return, the offer substantial benefits. For instance, JPMorgan Chase recently launched its Sapphire Reserve card.

The card costs around $450 up front. In return, though, customers get hundreds of dollars worth of travel credit and travel rewards.

Pay Your High-Interest Debt First

It’s likely the Fed will raise interest rates again before the year is out. That means that consumers have to be wary of interest rate payments on their most expensive credit cards. Make sure you pay off credit cards with the highest rate of interest first.

These suggestions are just a few of the many ways you can start to take charge of your credit. Don’t let it control you!