Avoiding Credit Card Debt

A credit card is a useful possession in one’s wallet: It can be used to take care of emergencies, while also helping build a good credit profile, which in turn will help you qualify for loans with larger amount (such as a car loan or mortgage) at reasonable interest rates. This is based on an assumption that you use the credit card wisely.

However, most people do not use credit cards wisely, so they end up in credit card debt, which can negatively impact  their financial life. By all means possible, credit card debt should be avoided. There are various ways to do this:

BUDGET AND PLAN WELL. Planning your finances is an important key to avoiding credit card debt. List down all your income and expenses, so you know where your money is going. It is the only way to see where you could save, so that your expenses don’t exceed your income. When this is achieved, you will realize that there is no need to borrow from your credit card. You have to ensure that you stick to your budget; otherwise the goal will not be achieved.

USE CASH OR A DEBIT CARD INSTEAD OF A CREDIT CARD. Don’t be tempted to swipe a credit card when you actually have some money in your account. Leave the credit card alone at this point and only reserve it for emergencies or when you are out of cash.

DON’T GO FOR CASH ADVANCES. Cash advances attract higher interest charges and they have no grace period for paying interest. In other words, as soon as you get a cash advance, your interest begins accruing immediately. There is also a possibility of a transaction fee for getting a cash advance from an ATM. So, don’t attempt to borrow from a credit card in the form of a cash advance. That’s why it’s important to plan your finances in advance, so you will not find reason to get the cash advance.

LIVE WITHIN YOUR MEANS. If you live a lifestyle that you can afford, then you don’t need to borrow or use credit cards. It is necessary to ensure that you adjust your lifestyle to fit your income level, or even better, think of living below your means, so you can save the residual income. You will surely avoid being in credit card debt.

KEEP JUST A FEW CARDS. The more cards you keep, the harder it becomes to manage them. It is better to have about two credit cards instead of a bunch of them. So, avoid applying for any card offer you come across, or else you will forever be in credit card debt.

SAVE, SAVE AND SAVE EVEN MORE. Get into the habit of saving, because this will help you take care of unexpected expenses as well as emergencies. Saving money also helps make a major purchase without using a credit card. So, make saving a part of your lifestyle and you will have more power to avoid credit card debt.

PAY THE ENTIRE BALANCE IN FULL. If you must use your credit card, charge only the amount that you are sure you will be able to pay within the grace period. Then go ahead and pay it off in full, so you will not accrue any interest on the remaining balance, a practice that usually sends people into more credit card debt.

KNOW THE COST OF YOUR CREDIT CARD by reading through the terms of use. You need to clearly understand how much annual percentage yield or any other fees will be applied to your card, the grace period on purchases, etc. This way, you will know exactly what it costs to use that card and this can help you devise means on how to either stay away from using the card, or the right time to use it and pay off what you have used.

MAKE PAYMENTS ON TIME. If you don’t pay on time, you will end up paying late payment charges, and there is likelihood that your interest might be increased, depending on the terms of your card agreement. Late payments are also reported to the credit bureau, which damages your credit, and this can end up costing you more in the long run. So don’t ruin your score because then, you will find it hard to get out of credit card debt.