How to Avoid Credit Card Debt

FT Contributor  | 

When you carry excessive credit card debt, your credit score is negatively affected for years. According to Experian, when you use more than 30% of your available credit, it’s seen as a red flag to potential lenders and creditors. About 30% of your credit score relies on how much credit you’re currently utilizing. Follow these strategies to keep credit card debt away.

Avoid Missed Payments

When you miss a credit card payment, the balance on your card is subject to interest. The interest rate you’re responsible for paying depends on your card’s terms. Your credit card company may also charge you a penalty fee for missing a payment.

To avoid missing payments, ensure you’re receiving your credit card statement, either by mail or electronically. Your credit card statement provides you with crucial information, including your current balance, minimum payment due, and the credit card payment due date.

Most credit card companies also allow you to set up alerts for your payment due dates. By opting in for these alerts, you’ll receive an email or text message a few days before your payment is due. This ensures you always know when it’s time to make a payment so you can avoid penalty fees and other charges.

Charge What You Can Afford

Even if you’re approved for a high credit limit, it’s important to only make purchases you know you can afford without credit. When you get into the risky business of making big purchases you know you won’t be able to pay off, you begin to accumulate credit card debt.

Continue to utilize good spending habits, even with access to a credit card. Before making a purchase, consider whether you’d be able to pay cash for the item. If you wouldn’t and you’re relying on credit to make the purchase, avoid the transaction.

Create an Emergency Fund

A common reason many consumers get into credit card debt is that they’re not prepared for unexpected emergencies. When you don’t have an emergency fund, you may find yourself reaching for your credit card to pay for unexpected car repairs or medical bills. By ensuring you have an emergency account set aside for these types of exigencies, you can avoid accruing credit card debt to pay for the unexpected.

Most experts advise you to have about six months to a year of salary in an emergency fund at all times. This can help you pay bills if you can’t work or cover other big expenses without relying on a credit card.

Understand Credit Card Terms

Before you sign up for a credit card, it’s important to find the best credit card for your situation. There are many credit card companies and different types of cards, so reviewing the details of each is crucial.

Consider the company and credit card network before you begin looking at cards. It’s important to only look into credit card options through a company that has good reviews and financial standing. Ensure the type of card you choose is accepted by the merchants you frequent. In addition to these considerations, you should also delve into the card’s specific terms, including:

  • Interest rate: Your interest rate is the charge you’ll be responsible for if you don’t pay your balance off each month. The rate may be different for balance transfers or cash advances, so pay attention to all rates. If you only qualify for a credit card with a high interest rate, it’s important to pay off your balance each month so you don’t start incurring credit card debt.
  • Fees: Credit card companies may also charge penalty fees for skipped or late payments, as well as balance transfers and cash advances. Review these fees in order to know what you may be responsible for paying.
  • Credit limit: The credit limit is the amount of credit you qualify for. Even if a credit card company provides you with a high credit limit, it’s important to continue spending within your means and practicing responsible spending habits.
  • Rewards program: Many credit cards have rewards programs that allow you to rack up rewards points as you spend. These may be cashed in for airline miles, gift cards, or balance credits. Review the different rewards programs and identify the one you think is most beneficial for your lifestyle.

Read through your credit card agreement to ensure you fully understand the charges you’ll need to pay in certain situations. When you’re familiar with these charges, you’re less likely to rely on your credit card for purchases you can’t afford since you can easily see how much it’ll cost you in the long term.

Pay the Balance Each Month

When you pay off your credit card balance each month, you avoid interest and other penalty fees. If you leave a balance on your card, it’s subject to these interest charges, which only increases the amount of credit card debt you have.

Although it’s tempting to make your minimum credit card payment, it’s important to understand how this directly leads to uncontrollable credit card debt. When you make the minimum payment, your balance continues to snowball due to the interest that’s incurred. This makes it nearly impossible to get out of debt since your balance is consistently growing.

Create a Budget

It’s easy to get into bad spending habits when you have a credit card. You have access to money that you don’t have to pay back just yet and you can play it free and easy with the funds. This mentality leads to credit card debt that’s hard to manage.

By creating a budget, you’ll keep a tight rein on your spending to ensure you don’t spend more than you can pay for. This allows you to avoid a large credit card balance and makes it easier to pay it off monthly.

A credit card is a helpful financial tool that can help build your credit and provide other rewards and benefits. However, if not used properly, you may fall into credit card debt that will ruin your credit score and financial future. Implement good spending habits and avoid this debt so you’re able to stay financially healthy, even as a credit card user.


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