So how do you get it higher?  Follow these three smart steps:

Step One:  Pay your bills on time!  It’s that simple…never be late

Step Two:  Pay off your credit card balance in full each month (as in, don’t get into debt)

Step Three:  Don’t close down your credit cards (you’ll eliminate vital credit history).  If you no longer wish to use a card, simply cut it up

And if you only use your credit card for small purchases under $50, you’re bound to always stay out of debt.  Because with a credit card bill of around $50 per month, that’s a relativley small balance and chances are you can pay that off in full each month.

Now you know…for more credit tips, visit our Personal Finance page and this article on the specifics of the credit score.

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In a world where online retailers are taking over, using plastic to pay for things is almost…a must.  And I say that with caution, because I’m a huge fan of cash…among many benefits, it limits your spending, since once there’s no more cash in your wallet, you can’t buy anything else.  With credit cards, it seems like a blank check.

Anyway, I wanted to take a moment to outline the difference between a credit card and a debit card…and under which scenarios you should use each card.

[Visit HelpSaveMyDollars.com's Personal Finance page...with tips to nearly 100 common financial problems!]

A credit card is essentially a loan.  If you have a credit card with a credit limit of $2,000, then you are free to go out and spend up to $2,000 using the card.  Let’s say in a month, you spend $500 using the card.  A few weeks after you make your purchases, you’ll receive a bill in the mail asking you to make a minimum payment, which is simply a portion of that $500.  The idea is to simply pay off the entire $500 (which is more than the minimum payment), or you’ll be charged interest…and interest rates on credit cards are high…typically over 20%.  The point to remember with a credit card is that you eventually have to pay off the balance.

You should use a credit card when shopping online…and in many cases you’ll have to, since you can’t use cash online!  The nice part about credit cards is you can dispute the charge if you come across a problem with a retailer.  Also, using a credit card is what creates your credit score, as all of the transactions on your credit card are reported to the credit bureaus (Experian, Equifax and TransUnion).

The downside of credit cards, as mentioned above, is the urge to spend.  If you’re buying something for $100, if you had to shell out five twenty dollar bills, that’s removing a lot of cash from your wallet, which may make you reconsider that purchase.  But by swiping the credit card to pay for that $100 item, you don’t necessarily get the same message, like “Hey, this is a lot of money and maybe I don’t really need to buy this!”

Also, the late fees and interest charges on credit cards can be exorbitant if you don’t pay off the balance in full and on time.  Just some things to think about before you swipe that card.

When you use a debit card to pay for something, money is transferred out of your checking account to complete the purchase.  You don’t have to pay back anything and you won’t get a bill in the mail afterwards, since you’re paying for the item as soon as you swipe it.

Debit cards still encourage that “urge to spend,” like credit cards do since you’re not physically removing cash from your wallet.  Now if you don’t have enough money in your checking account to complete the purchase, you’ll be charged an overdraft fee from your bank of $35.  Thankfully, as part of the new credit card laws, the Credit CARD Act of 2009, your purchase will be denied if there isn’t enough money in your account…this is called overdraft protection and applies to all consumer accounts…unless you choose to opt out.  These days, because of this legislation, overdraft fees are not much of a concern.

Don’t use debit cards online, as there are safety concerns and even at restaurants, you could be putting yourself at risk of identity theft, etc.  Rule of thumb: you should be the only one swiping your debit card!  Debit cards do not help build your credit, as transactions are not shared with the credit bureaus.

Do you use cash, credit cards or debit cards…or all three?  Let us know!

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1. Figure Out Exactly How Much Debt You Have:
You need to figure out where you stand. Tally up all of the balances on your credit card statements and know the interest rate on each card. Especially during the holiday season where we swipe our credit cards on gifts and purchases on a daily basis, it’s tough to remember how much you spent on each credit card you have.

2. Negotiate The Interest Rate:
What makes debt so expensive is the interest rates. The next step is to contact your credit card companies and ask them to lower the interest rate on the card – its as simple as that and ask to speak to a supervisor if necessary.

3. Balance Transfer Cards:
Your other option is to transfer the debt on your current credit card to a new credit card that has a lower interest rate. These cards are generally called balance transfer cards and they have a low interest rate of say 0 to 5% for a short period of time, usually 6 months and these cards will save you money in interest and buy you some time to be able to gather the money to pay off that debt.

4. Pay MORE Than the Minimum Payment:
On your credit card statement, you’ll be asked to pay a minimum payment. The key is to pay more than the minimum payment. For example, if you have $1,000 in credit card debt with an interest rate of around 20%, it’ll take you about 10 years to pay off the debt if you only pay the minimum payment. But if you double that minimum payment each month, and in this case that only means paying an extra $25 per month, it’ll take you about 2 years to pay off the debt.

Even if you can only pay an extra $10 or $20 each month, do so!

5. Pay Off The Card With The Highest Interest Rate First!
Focus on the card with the highest interest rate – chances are this is the card that’s costing you the most money so you want to pay off its balance as soon as possible. Once this card is paid off, whatever amount of money you were paying on that first card, direct that amount to the card with the second highest interest rate. Keep doing this until all of your cards are paid off.

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1. Secured Credit Card

On a secured credit card, you must make a security deposit of a few hundred dollars – this security deposit acts as the credit limit or the maximum amount of money you can spend. If you default on the card, the bank/credit card company will take your security deposit as collateral – this minimizes the risk from the credit card issuer’s point of view.

(READ: How to build a great credit score)

The goal of having a secured credit card is to eventually be approved for a traditional line of credit (a card that doesn’t require a security deposit and one that offers rewards points, cash back, airline miles, etc.). In order to accomplish this goal, use the credit card responsibly. Even one mistake can throw you off course. Here are some tips:

• Pay the balance off in full and on time!
• Use secured credit cards for small purchases (under $50 per month)

2. Traditional Credit Cards

If you can find a parent or relative who is willing to cosign on the card, then go ahead and apply for a traditional student credit card (meaning there is no security deposit and the card is not affiliated with a department store – it’s just a regular credit card from Capital One, VISA or Master Card, for example).

Also, if you have a job and are earning money, you may be approved for a card without having a cosigner. Remember, the Credit CARD Act requires a cosigner for anyone under age 21, unless you have the ability to pay off the card on yourself. The law never mentioned any specifics on what income a young person needs in order for the cosigner to be waived – it is up to the credit card issuer.

3. Credit Unions

Another option for students is to apply for a credit card at your school’s credit union. Credit unions are not-for-profit financial institutions formed by members.  Here’s why credit unions are beneficial:

-Better Rates: Credit unions usually have higher interest rates on savings and checking accounts and lower interest rates on credit cards. Remember, credit unions are not-for-profit and they don’t waste any money on lobbying or high executive bonuses — unlike regular banks.

-Fewer fees:  Don’t be surprised to find that most credit unions have very few fees, if any.

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Debt also takes a toll on your credit score, one of the most important aspects of your finances.  It’s a score that determines what interest rate you’ll get on loans and mortgages.  The score also gauges how responsible you are with money.  The goal is to have the highest credit score possible on a scale from 300-850.

Among the many factors that affect your credit score (click here for info on all of the factors), debt is one of the most powerful determinants of the score – 30% accounts for debt or “Amounts Owed.”  Your credit utilization ratio or debt-to-credit-limit ratio gauges how debt will affect your credit score.  This is a ratio that compares what you owe vs. the total available credit limits you have among all of your credit cards.  The goal is to have the lowest utilization ratio as possible. Here is an example:

Let’s say you owe $1,000 on a credit card with a $3,000 credit limit. Your individual utilization ratio for this specific card is 33.3% (1,000 ÷ 3,000)

If you owe $3,000 on another credit card with a $5,000 credit limit, your individual utilization ratio is 60% (3,000 ÷ 5,000)

In addition to weighing the individual utilization ratio from each card, FICO also takes into account the overall utilization ratio, which in this case is the ratio of the total amount of money you owe across all of your credit cards, which is $4,000 (1,000 + 3,000) divided by the total credit limit across all of your credit cards, which is $8,000 (3,000 + 5,000). So your overall utilization ratio is 50% (4,000 ÷ 8,000).

This is a high utilization ratio and would result in a damaged credit score.  Aim to keep your utilization ratio as low as possible, or below 30%.

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Now one year later, was the CARD Act a success?

The simple answer: yes and no.

Studies published last week show how the CARD Act has benefited consumers, despite opponents who claimed the laws would only prompt banks to think of new ways to make money.

Among the specifics of the CARD Act included clear and easy to understand disclosures on credit card statements.

According to the Center for Responsible Lending, “an estimated $12.1 billion in previously obscure yearly charges are now stated more clearly in credit card offers.”

Another component of the CARD Act dealt with minimum payments. Credit card companies must now disclose exactly how much money in interest it will cost and how long it will take consumers to get out of debt if they only pay the minimum payment. According to a survey conducted by Consumer Reports in July 2010, 23% of those of participated in the survey are now making payments greater than the minimum as a result of the warnings on the credit card bill.

Interest rates on credit cards have increased. According to the Federal Reserve, interest rates on credit cards towards the end of 2010 on average were 13.44%, compared to about 12.08% in 2008. The credit card industry would argue that the increase in interest rates was due to the CARD Act and more rules and regulation. However, according to a study released last week from CardHub.com, the rise in interest rates was due to the unstable economy and not the CARD Act.

CARD Act Fails to Help Students

The CARD Act aimed to protect students from credit card dangers by requiring those under age 21 to have a cosigner on the account and prohibiting credit card companies from sending pre-approved credit card offers to those under age 21 via mail.

According to a study released last month from the University of Houston, 76% of undergraduate students received credit card offers in the mail over the past year. While it’s still legal for companies to send credit card offers in the mail (pre-approved offers, however, are illegal and against the CARD Act), this study shows how willing credit card companies are to find any and all loopholes. Here’s a tip: if you’re a student and receive any type of credit card offer in the mail, rip it up and throw it away! Credit cards offers sent via mail are usually littered with high fees and high interest rates. Instead, apply for a secured credit card or visit CreditCardConnection.org to search for credit unions in your area.

While the CARD Act was a win in terms of more transparency and disclosures, it’s up to the consumer to ensure that they are not getting ripped off by credit card companies. Best option: use cash – you won’t have to worry about what credit card companies do and you’ll never accrue credit card debt.

Revolving debt (credit card debt) was up by 3.5% in December to $800.5 billion.  Nonrevolving debt (like car loans or student loans) jumped 2.8% to about $1.61 trillion.  Total debt increased by 3% to about 2.41 trillion.

Why the Upswing in Debt?

December is the height of the holiday shopping season.  According to the National Retail Federation, consumer spending during the 2010 holiday shopping season rose by some 3.3%.  Consumers felt more at ease with their financial situations last December and after tighening their belts for the 2008 and 2009 holiday shopping season, it was time to hit the stores.

This Isn’t Good News

An increase in consumer credit card debt is never a positive sign for our economy.  That money has to be paid back to the creditors!  Consumers who racked up credit card debt in December are currently suffering with a minimum payment, damage to their credit score and in some cases sleepless nights.  HelpSaveMyDollars.com always urges consumers to make purchases with cash – if you can’t afford an item, don’t buy it!  Using a credit card to pay for an item that you really can’t afford makes no sense.  Unless you have the liquid cash, you can’t afford it and thus shouldn’t buy the item.

How to Get Out of Debt

Luckily, HelpSaveMyDollars.com has tons of resources to help you pay off debt.  Visit our Credit Cards section for more information or this specific article, which offers tips on reducing debt.

Here are a few simple tips:

1.  Pay MORE than the minimum payment!

2. Start paying off the credit card with the highest interest rate first.

3. Look into opening up a balance transfer card, where your transfer your credit card balance to a credit card with a promotional interest rate that is very low.  Visit BankingMyWay.com to search for balance transfer cards.

1.  How Much Debt Do You Have…and Why? While it wasn’t a smart move to have racked up hundreds or even thousands of dollars in credit card debt, what’s done is done.  The fact is, you have this credit card debt, which resulted from purchasing holiday gifts for friends and family, who will probably forget about those gifts by next year!  Be honest and determine exactly how much debt you’re in.  Write it down on paper and recite it every night.  Get determined and psyched to tackle your debt.

2.  Get Those Interest Rates Lowered: What makes credit card debt so financially damaging are the expensive interest payments.  Call up all of your credit card companies and ask them to lower the interest rates on the cards – ask to speak with a supervisor if need be.  They should lower your rates by 2-3%.

3.  Pay MORE Than the Minimum: This is the most important rule!  For example, if you have $5,000 in credit card debt with an interest rate of 26%, your minimum payment will be about $160.  By only paying this minimum payment, it’ll take you over 24 years to pay off this debt!  But let’s say you double the minimum payment each month and you pay $320 per month.  By paying $320 instead of $160, it will take you less than two years to pay off this debt!  Think about how much money you’ll save in interest by paying more than the minimum.  Even if it’s only $5 or $10 more, that’s still a huge difference.

4.  Focus on the Highest Interest Rate: Start paying off the credit card with the highest interest rate first.  After all, this card is costing you the most money, so it’s important to pay this card off as soon as possible.  Once that card is paid off, start tackling the card with the next highest interest rate, and so on, until all of your cards are paid off!

Visit HelpSaveMyDollars.com’s Credit Card section for more tips on paying off debt

The holiday season is typically the time when consumers rack up huge amounts of credit card debt due to extreme spending.  But Moreplace Market Research says that 40% of consumers plan to ditch their credit cards when shopping for the holidays, and use cash instead.

With cash, you don’t have to worry about getting into debt – at some point, you’ll run out of cash, which will force you to stop shopping, whereas with credit cards, there are no boundaries.

As the economic recovery continues to stall, embracing tactics (like using cash only) that ensure the accumulation of small amounts of debt, is a wise idea.  The unemployment rate still remains high at 9.6% and along with the weak dollar and the weak housing market, we’re still not out of the woods yet when it comes to the economy.

The survey also found that 15% of shoppers plan to use credit cards to make all of their purchases this holiday season – not a good idea!  Come January, when the credit card statement arrives in the mail and you have no idea how you’re going to pay off the balance, that’s when the trouble starts.  Interest and late fees will accrue and not to mention the damage to your credit score.

Set aside a strict budget for holiday shopping.  For help in creating your budget, use our Expense Calculator.  If you determine that you can spend $500 this holiday season, then set aside $500 in cash – when you shop, leave your credit cards at home to avoid any temptation of spending over your budget.

Here are some quick tips to avoid holiday debt:

1.  Make a list of exactly what gifts you need to buy, to prevent you from impulse spending

2.  Save all receipts, in case items need to be returned

3.  Don’t feel pressured to purchase gifts for everyone you know – a thoughtful card (which is cheaper than a gift) goes a long way!

Continue to follow HelpSaveMyDollars.com throughout the entire holiday season, as we plan comprehensive content on how to save money this season and sign up for our newsletter!

1.  Credit Score: Department store credit cards are very easy to open up (there is rarely a strict credit check).  Since 10% of your credit score represents the type of credit you have, having a department store credit card seems as if you are desperate for credit, or that you were denied a traditional credit card because you don’t meet the criteria.  Also, opening too many credit cards at one time negatively affects your credit score – and that’s 15% of your score.  It is better for the credit score if you use a card from the major issuers instead of from a department store.

2.  Interest Rates: Interest rates on department store credit cards are extremely high – much higher than a traditional credit card.  For example, a Bloomingdale’s credit card has an interest rate of 24.5% that is variable, not fixed, meaning it fluctuates!  The Bloomingdale’s card has a late fee of $39 for any balance over $300!  A credit card from Kohl’s has an interest rate of 21.9%, but that rate will jump to 24.9% if you make a late payment!  The BJ’s Visa Card has an an interest rate as high as 21.74% (based on a low credit score) and can jump to 30.24% (based on the level of your credit score) if you make a late payment or exceed your credit limit.

You may think to yourself, “If I pay the bill off in full each month, I won’t have to worry about paying interest.”  That’s true, but what happens if you’re one day late or forget to make a payment?  Then you have to worry about paying interest.  With rates like these, you’re erasing any savings you received from the discount the card offers on the store’s items.

3.  Excuses: Let’s say you open a credit card from a department store that you love to shop at and as a result, every time you use this card at that store, you’ll receive a 15% discount.  This discount will give you an excuse to buy unnecessary items in that store because of the discount you will receive.  As we say in our 20 Laws of Saving Money, just because something is on sale or just because you’re receiving a discount on an item, doesn’t mean you should purchase it.  With a department store credit card, you will be saving money, but the discount will force you to want to purchase frivolous items, because psychologically it feels good to get a discount!

As with all credit cards, do some research to find out what the interest rate is on the card and what all of the fees are.  For more information on credit cards, visit our Credit Card section.

What are your thoughts on department store credit cards?  Please comment below: