Credit card debt has risen to record levels as of Q3 2024, with the total amount of debt reaching an alarming $1.17 trillion, a figure that has never been seen before in our country’s History.

Principal reductions on payments of outstanding debt are not written off on tax returns, and therefore, the debtors must pay federal and state taxes on these reductions.  This means that a consumer could end up having to earn 300% of their outstanding balance to pay for principal reductions, federal and state taxes, and interest at an annualized 24.43%.  For a $10,000 outstanding balance on credit cards, a consumer may need to make $30,000 to pay them off.

Working Americans are grappling with the challenge of affording family expenses that have surged due to inflation. Many consumers are compelled to resort to credit cards to cover essentials such as food, gas, and electricity for their homes, cars, daycare, and veterinary visits. A seemingly harmless night out with the family, which provides immediate satisfaction, can quickly turn into a long-term debt.

Here’s a clear breakdown:

✅ Benefits of Credit Card Usage

·       Convenience & Security

·        Easy to carry and widely accepted.

·        Safer than cash; fraud protection and zero-liability policies for unauthorized charges.

·       Builds Credit History

·        Responsible use (on-time payments, low utilization) improves credit score, which helps with loans, mortgages, and better interest rates.

·       Rewards & Perks

·        Cashback, travel points, discounts, and promotional offers.

·        Some cards offer extended warranties, purchase protection, and travel insurance.

·       Emergency Access to Funds

·        Provides a financial cushion when cash is not available.

·       Record Keeping

·        Monthly statements help track spending and manage budgets.

❌ Detriments of Credit Card Usage

·       High-Interest Rates

·        Carrying a balance can lead to significant interest charges (often 18–30% APR).

·       Debt Accumulation

·        Easy access to credit can lead to overspending and long-term debt.

·       Credit Score Risk

·        Late payments, high utilization, or defaults can damage your credit score.

·       Fees

·        Annual fees, late payment fees, foreign transaction fees, and cash advance fees can add up.

·       Psychological Spending Effect

·        People tend to spend more with credit cards than with cash because it feels less tangible.

Using credit cards wisely comes down to maximizing benefits while minimizing risks. Here are some practical strategies:

✅ 1.  Pay Your Balance in Full Each Month

• Avoid interest charges by paying the full statement balance before the due date.
• If you can’t pay in full, pay more than the minimum to reduce interest costs.

✅ 2.  Keep Credit Utilization Low

• Aim to use less than 30% of your available credit limit (ideally under 10%).
• High utilization can negatively Impact your credit score, even if you make timely payments.

✅ 3.  Pay on Time—Every Time

• Set up automatic payments or reminders to avoid late fees and potential damage to your credit score.
• Even one late payment can stay on your credit report for years.

✅ 4   Take Advantage of Rewards—But Don’t Overspend

• Use cards that match your spending habits (cashback, travel, etc.).
• Never buy things you don’t need to earn points.

✅ 5.  Monitor Statements and Credit Reports

• Check for fraudulent charges and billing errors.
• Review your credit report at least once a year (free at AnnualCreditReport.com).

✅ 6   Avoid Cash Advances

• They often come with high fees and immediate interest charges.

✅   . Limit the Number of Cards You Open

• Having too many cards can make managing payments more difficult and may negatively Impact your credit score.