Consumer Credit Habits: What’s Normal?

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As consumer debt continues to rise (it hit an all-time high at the end of 2012), people are left with an array of questions about their credit: Am I borrowing too much? How will my spending affect my credit? Do I have normal debt? What’s my credit score? Could it be higher?

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Many Americans have used these questions to determine which credit cards make the most sense for them so that they can build their credit, yet pay off their debt quickly at low interest rates. Bank of America recently conducted a consumer credit survey to understand not only how consumers today are using their credit cards, but also what appeals to them when it comes to credit cards rewards. The survey found that:

  • 54% respondents currently carry a monthly balance on their credit card.
  • 32% of those surveyed usually pay more than the monthly minimum but not the entire balance.
  • If given an extra $1,000, 44% of respondents are most likely to use it to pay off some for of debt (credit cards, loans, etc.).
  • If given an extra $1,000, women are twice as likely to pay off loans as men. Men are twice as likely to invest in an IRA or stocks.
  • 72% of respondents carry 1-3 credit cards in their wallet.
  • 28% of respondents carry 4+ credit cards in their wallet.
  • When it comes to credit card incentives, 86% of consumers want cash back, 62% of consumers want merchandise, and 47% of consumers want rewards.

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Here are a few ways you can ensure you’re taking the right steps to choosing the right credit card and managing your debt responsibly:

Look for a card with minimal fees. Most credit card companies charge late payment fees (so pay your bills on time!), but make sure you start with a credit card that has no annual fee.

Embrace your rewards options. Most credit cards now come with cash-back and rewards programs to incentivize cardholders to use the cards to make purchases. Choose a card that offers rewards that make sense for you. If you travel a lot, then it may make sense to choose a card that offers discounts on airfare, hotel bookings and car rental purchases.

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Pay off your credit card each month (or at least more than the minimum). Failing to do this means you’ll pay more in interest and it’ll take you longer to pay it off. It would take almost 10 years to pay off a $1,000 credit card balance (at 14% APR) if you were to only make the minimum monthly payment. If you can, pay the balance in full at the end of each month.

Create a game plan to climb out of debt. If you’re holding onto a lot of credit card debt, stop using your credit cards. Continuing to recklessly spend your money will only further hurt your financial standing. The first step to creating a game plan to get out of debt is to revisit your budget and factor in your monthly debt payments.

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