In this day and age, it is quite a challenge to try and avoid credit card debt altogether. The use of your credit card is already deeply embedded in society that it has grown to be a part of your daily transactions. You use it to purchase the most mundane items on a daily basis all the way to big-ticket items.
There is also a good chance that you have more than just one credit card under your name. CNBC shares that an average American has about 4 different credit cards. What you need to remember is that these cards are not the problem when you start getting in debt. It has more to do with how you use it. Remember that there are successful people who are able to use their credit cards to their advantage.
Not only are they able to avoid credit card debt, but they also put their credit card to good use. Whenever you use your card, you are already in debt and obligated to pay your lender the amount you charged on credit. Every time you use your card, you are taking out a small short-term loan from your lender you need to pay back on or before the due date.
Start of the problem
This concept is sometimes lost on people making them spend more than what they need to think they have money in the bank. As a result, they get into unmanageable debt that takes them a while to pay down. It is one of the reasons why a lot of people are trapped in a spiral of credit card debt for most of their lives. If you want to avoid the same scenario or simply want to get out of one, here are a few things you can look into to help you manage your card use better.
Put together a comprehensive budget
If you want to avoid credit card debt, the first thing you need to do is create a comprehensive budget at home. You might come across people telling you to cut your cards up right this minute to stop you from using it. That is a bit drastic step but there are people who choose to go down that route because they are in so much debt.
It is better to create a comprehensive budget first so you get an idea of what exactly you are dealing with. Your budget needs to be as comprehensive and complete as possible. This means you need to account for all your sources of income as well as all your expenses and payments you make every month. Once you do this, you get to have a clear picture of what you need and what you need to pay down.
Besides, if you cut up your card physically, you still need to pay it down. If you also choose to close your credit card accounts abruptly, it could adversely affect your credit score. This is true especially if you are letting go of an account that has been with you for a long time. When you decide to cut it out, you are letting go of an account with a lot of credit history which negatively affects your score.
Assign a card to specific expenses
One way to help you avoid credit card debt is to assign each card you have to a specific expense. This is one way to help you limit the use of each card and stay away from unnecessary expenses. Also, this is how you can maximize and use your credit card to your advantage. Take note that before you assign your card, take a look at the rewards it can give you.
If one card can give you points or rebates every time you use it for gas, you can use that card specifically for your car and when getting gas. If one card offers discounts when used for food items, you can use that card for your groceries and when buying food at home. This way, you get to lower down and spend less than what you budgeted for.
One advantage this brings you is that you get to monitor each card better. For one, you can use the statements you get to have a detailed list of your expenses every month. It makes it easier for you as well to notice inconsistencies in your account which could be a sign of identity theft. The better you can monitor your expenses, the higher your chances of staying out of debt.
The credit limit is not money you have
As mentioned earlier, your credit card is not an extension of the money you have in the bank. Your credit limit is the amount you can borrow from your lender and not money you saved up. The higher the limit, the more your lender trusts you. One way to avoid credit card debt is to make sure that you understand this concept clearly.
Every time you use your credit card, you are borrowing money from your lender. You then have the choice to pay everything in full or at the end of the month or pay installments on it. When you choose the latter, your lender will agree to it but begin to assess interest payments on your account. They can even put in some extra fees on it depending on the terms you agreed to at the beginning.
That being said, your goal is not to reach your card limit because you might have a tough time paying it back. A good rule of thumb as well when using your credit card is to spend only the amount you can pay back in full at the end of the month. If you cannot do that, try saving up for the expense first especially if it is a want you are spending for.
Sign up for text alerts for card activity
One of the best ways to help you avoid credit card debt is to sign up for alerts whenever your credit card is used. This is helpful if you have automatic payments coming out of your card or if you have given supplementary cards to family members. You might have given on to your child who just started college to be used for emergency situations.
This is also a good way to stay on top of your credit card activity and prevent thieves from accessing and using your account. Once you receive an alert that your card is being used and you have no idea who is using it, you can call your lender immediately. This can lower your risk of being in the hook for purchases made by thieves.
Organize your bills
If you want to avoid credit card debt and manage your finances better, try organizing your bills. This includes keeping and checking receipts you get for your card use and even the statement you receive each month. These documents will help you understand your card activity and find a way to manage it better.
If you notice that you frequent a pizza place for most nights in a week, why not learn how to create homemade pizza? This will help you save money and lower the need to use your card to buy pizza. You might also have a recurring bill for a gym membership you hardly use. Finder shares that Americans spend $1.8 billion in unused gym membership. You can cancel that and just go out for a run on weekends or at night when you get home. If you are able to organize your financial documents better, you can make better decisions.
Do not save your card information in your gadgets
Technology has allowed consumers to shop and buy almost everything that they need online. Booking rides, plane fare, hotels, and even ordering food are all done seamlessly online. Payment is a breeze as well with your credit card information. However, if you want to avoid being in too much credit card debt, it might be a good idea not to save your card information on your gadgets.
One reason for this is that if it is saved in your smartphone or laptop, check out and pay for whatever your heart’s desire is a lot easier. You might feel that impulse to buy something you do not really need but since payment is hassle-free, you have already paid for the item before realizing you do not have a need for it. Choose to input your card information manually so you get to decide if the purchase is a necessity or not.
It is not easy to avoid credit card debt and the idea is to choose how you can use your card wisely and to pay it off at the end of the month. You can use your credit card anytime but you need to be smart with it to help you take advantage and use it to strengthen your finances.