Charge It!

Using credit cards is as American as apple pie. Unfortunately, so is debt. The average American charged more than $4,000 on credit cards last year.

For many of us, the convenience of using charge cards instead of cash makes it easy to spend more than we have. But too much shopping isn't the only reason Americans owe more money than ever before. There are hidden costs to using credit cards that most of us never think about.

A credit card works like an instant loan. If you're short on cash, you can charge your groceries and pay for them at the end of the month when the bill, and your paycheck, arrive. If you pay the entire amount you owe, then no extra fees are added to your bill. But most cards also allow you to submit a "minimum payment." This amount is less than the total you owe. This might sound like a good deal, but when you pay less than you owe, the interest charges begin to pile up.

Each time you make a minimum payment, the credit card company adds a small fee to your bill called a "finance charge," which is like the interest on a loan. These days, finance charges can be as high as 15% or more per year. That's more than twice what it costs to borrow money from a bank! Over time these charges can really add up.

The more money you owe on your credit card, the higher the added finance charges will be. Over time, these extra charges can add up to thousands of dollars and can take years to pay off. Eventually, even a few low cost purchases can add up to a small fortune. But there are ways to battle the debt monster:

—Figure out how much you owe on each credit card.

—Pay off the cards with the highest finance charges first.

—Try to pay more than the minimum payment required each month.

—Use a credit card in emergency situations only. For all other purchases, use cash.