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7 Signs It’s Time to Ditch a Credit Card

Elizabeth Aldrich, The Motley Fool
credit card trends 2019

Image source: Getty Images.

Credit cards can help you build your credit score and earn points and miles that can translate to free vacations. Unfortunately, they can also land you in hot water if they aren’t used responsibly. High-interest debt and continuous overspending can destroy your finances. If you find yourself putting a check mark next to the following scenarios, you may want to consider getting rid of your current credit card.

1. You’re missing payments

Payment history is the most important factor in calculating your credit score. This means missing payments is one of the easiest and quickest ways to ruin your credit. If you are a habitual late payer, a credit card isn’t the right choice for you. Each late payment will be added to your credit report, and you’ll have to pay punitive late fees to the credit card company. If they go unpaid long enough, you could end up with bills in collections and a credit score that’s completely wrecked. To avoid falling into this predicament, set up automatic payments so that you never miss a deadline.

2. You’re not paying off your balance in full each month

You should always plan to pay off your balance in full each month to avoid interest charges. Carrying a credit card balance from month to month can land you in debt, and credit card debt is not cheap. Let’s consider that the average credit card has a 17% interest rate. If you run up a balance of $5,000 and pay only the minimum payment required each month, you will end up paying close to $2,360 in interest fees alone! Even worse, it will take you more than seven years to pay off the balance. If you tend to carry a balance, it may be in your best interest to pause on using your credit card and use cash for purchases until your financial house is back in order.

3. You’re spending more than usual

Unlike with cash, there is a lag of time between when something is purchased with a credit card versus when your bank account is actually affected. Because of this disconnect, people tend to overspend more when using credit cards. One study found that participants were willing to spend $175 to throw a Thanksgiving party when using a credit card, but only $145 when using cash. Make sure you’re keeping your spending under control if you want to hold on to that credit card.

4. You’re paying high interest rates

It may be time to search for a better credit card if your current one has a high interest rate. The average credit card interest rate is around 17%, but it’s easy to find a lower rate if you have good credit. Some of the best low-interest credit cards offer APRs closer to 11%-13%. Finding the right card takes a little time and research, but shopping around for the best deal is always worth it.

5. Your credit card doesn’t offer rewards

If you are using your credit card as a primary means of spending, you should be earning credit card rewards in exchange for your purchasing loyalty. With the best cash-back credit cards, you can use cash back to save hundreds each year. The best travel credit cards will earn you travel points and miles that you can redeem for your next vacation. Rewards vary by card and typically have limitations, so it’s important you compare offers to find a match to fit your lifestyle and spending habits.

6. You’re not spending your points and miles

You might be earning rewards, but they don’t do you any good if they sit in your account unused. If you’re having trouble redeeming your rewards, consider a travel credit card that offers flexible rewards. Some of these credit cards allow you to transfer your points to a number of different hotel chains or airlines, while others allow you to redeem your points for a variety of travel costs, such as museum passes and ground transportation. If you aren’t interested in travel perks, go with a cash-back card instead. You’ll earn cash back on everything from groceries to filling up your car at the gas station.

7. Your credit score has gone up

If your credit score has significantly increased since you opened your credit card, it’s definitely time to contact your credit card company to lower your rate and find out if you qualify for additional offers. If they won’t budge, use your new score to seek out better offers that meet your current financial standing.

Credit cards should make your purchasing decisions more convenient and less stressful. If your credit card isn’t living up to your expectations, it’s time to make a change.

The Motley Fool owns and recommends MasterCard and Visa, and recommends American Express. We’re firm believers in the Golden Rule. If we wouldn’t recommend an offer to a close family member, we wouldn’t recommend it on The Ascent either. Our number one goal is helping people find the best offers to improve their finances. That is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.