NASHVILLE, Tenn. (WTVF) — Credit cards can be great tools for getting rewards and points. They can also get really expensive, really fast, if you leave an outstanding balance.
"If you don’t pay off a credit card, there’s only so far a company can go to get that money back, so that’s why the interest rates are so high. There’s a risk the company may not get their funds back," said Brenton Harrison, a Financial Planner based in Nashville.
A new study from the Federal Reserve New York found that more than 22% of Americans keep a balance on their cards, racking up debt through those high interest rates.
"Credit card balances have increased but retail card balances have not," explained Harrison, who read the report. "To me that says, people are using credit cards more frequently but they’re using them for things they have to have — they’re paying for childcare, they’re paying for gas."
Naturally, he recommends avoiding debt as much as possible.
"You have to be able to find that place, that line in the sand, where you say, enough is enough, if I don’t change something now, I really won’t be able to get back to center," he said.
But there are some things you can do, when avoiding debt just isn't possible.
"So I try to tell people, if it’s something you absolutely can’t avoid, where is the lowest interest rate you can borrow from to make sure you haven’t dug a hole and you’re just stuck in that hole?" asked Harrison.
For homeowners, that may be opening up a home equity line of credit.
"Where you’re using your house as the thing that could be seized in the event you don’t repay it, the interest rates are lower because it’s a lower risk to the lender," he explained.
In the long run, Harrison recommends finding other places in your budget to cut back and apply those funds to paying down debt and building up your savings.
"Whenever possible, figure out the right balance of trying to eliminate the debt you have while also saving so you don’t have to go back to those same sources," said Harrison.
Harrison adds, some employees now offer options for you to automatically put money into a savings account. He says that is a great tool to build up savings, without having to actively think about it.
Do you have more information or thoughts about this story? You can email me at Chris.Davis@newschannel5.com.
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