A lot of people are trying their best to stay away from debt to help them improve their finances. They can be planning for their future, trying to make a big item purchase, or simply planning for unforeseen situations. One of the first things people blame for their debt problems is their credit cards where most of their statements come from.
Most people are quick to put the blame on their credit cards but you need to remember that it is just a financial tool. Like most tools, the results only mirror the way you use the tool. If you are deep in credit card debt, it only means that you overused your credit. You could have charges multiple items you really did not need.
It is also possible that you used your card for emergency purposes and unable to pay the full amount at the end of the month. NBC even shares that 1 in every 5 American has more credit card debt than an emergency fund. This will make it a lot harder to stay away from debt because you now have a big amount to pay on your cards. And this is just about your credit cards. There are other things in your life that contribute to your debt problems.
However, you can also use your credit cards to help you keep debt at bay. As mentioned earlier, it is just a tool that you use to help you with your finances. That being said, you can use your credit cards to help your finances stay away from unmanageable debt. Here are a few things you can look into how your credit cards can be used as a tool against debt.
Stay away from debt with a comprehensive budget
Before you look at your credit cards, you always have to start with a comprehensive household budget. This should always be your take-off point when making big money decisions. Your budget will help you make financial decisions based on your income and expense. Without it, you will be making guesses which could lead to bigger problems down the road.
A comprehensive budget is usually composed of two important parts. On one side, you have your income or the money that comes into your household every month. On the other side would be your expenses. These are your financial obligations every month and can consist of many different accounts. It can vary from your house and car payments to credit card payments all the way to your utilities and food budget.
The idea always when you want to stay away from debt is that your expenses should be lower than your income. If it is the other way around, you will have a hard time managing your finances. You will always be in debt where your obligations just keep getting bigger and bigger every month. You need to make sure that you have enough income to pay for your expenses.
Assign each credit card for a particular expense
One of the best ways to stay away from debt using your credit card is to assign each of them to a particular expense. This will help you monitor your card usage and at the same time, help remind you how to use your cards. This way, you do not mindlessly swipe away on the first card you get from your wallet or bag.
You can assign one credit card for the groceries, one for car-related expenses, one for bills and online use, and maybe another one for emergency situations. Once you do this, you know have restrictions on how you use your card. You should not use the one for car expenses to buy groceries and vice versa. This will instill discipline when it comes to card use.
It might sound easy but bear in mind that this can become challenging especially when you are trying to balance multiple card payments. If you want to take this up, start with one or two credit cards. When you get used to it, you can start adding more cards and assigning them to different expenses. You can easily monitor your usage for each particular expense item by looking at your monthly statement.
Pay your cards in full every time
If you want to stay away from debt, you have to remember that those statements you get every month are not just a reminder of what you charged on your card. Make sure that you pay them in full every month. If you cannot do that, you might have to rethink your strategy when it comes to credit card use. This is because rolling over your payments to the next month can hurt your finances. Late fees and other penalties might be added by your lender.
One major benefit of paying your cards on time and in full every time is that your credit score improves in the process. The more you make on-time payments, the better it will reflect on your report and bump your score up. This is one of the biggest benefits credit cards can give you. It has the ability to help you improve your score.
If your score improves, it has a domino effect in helping you manage debt payment. Think of it this way, when your score goes up, you can be given better interest rates by future lenders. The better your credit score is, the lower your interest can be. Once this happens, your payments will be lower compared to high-interest loans. In essence, it will be easier to pay and you will have an easier time as you try and stay away from debt.
Understand what your rewards are
Another advantage of using your credit cards is that you get to rack up rewards from your lender. The more you use your card, the bigger your rewards can be. This reward system differs from one lender to another and it is usually meant to encourage you to use your credit card more. You can use this system to help you stay away from debt.
First, you have to know that there are many ways on how lenders give rewards to their consumers. There are those that give you cash back rewards on purchases you make. This is a great reward because you earn back part of the money you paid. You can also earn points which you can use for a number of things. It can be to redeem items or even give you free airfare or hotel stays.
Whatever the reward is, you can use it to help you lower down your expenses. This makes it all the more important to choose your credit card wisely. Choose the cards that reward you items that you need and use. If you frequently travel then get a card that can either give you free airfare or a discounted one. This will greatly lower your expenses and help you stay away from debt.
Debt consolidation with your credit cards
In order to help you manage your debt payments, you can consider getting into a debt consolidation program. This is effective especially when you have a credit card with a low-interest rate. There are even some lenders who give out 0% cards for a limited time. You can take advantage of this when consolidating your debt.
Simply put, debt consolidation will give you the chance to combine most, if not all your debt under one account. If you were able to put all your credit card debt into a card with a 0% rate, you can save a lot of money and be able to aggressively pay down your debt. Just remember that these offers usually have a specific promo period and one that is done, the regular rate can apply.
There are a number of ways how you can use your credit card to stay away from debt. You just have to make sure that you use it wisely and not put you in deeper debt.