When used wisely, credit cards can help you build a good credit rating and can be useful in emergencies. When used unwisely, they can be a source of misery for you and your family. Depending on how you use your credit card, it can be one of two things – a high interest loan or a convenient way to shop without carrying a large amount of money. The best idea is to use your credit card as a substitute for cash rather than as a high interest loan. There are very many ways to avoid credit card debt and here are five of them.
Charge just what you can afford
Many people, especially young people, use credit cards to buy things they can’t afford. You should never use a credit card to finance a very expensive lifestyle beyond your reach. The use of credit cards should be limited to emergencies and paying for a necessity. If you have enough money in the bank to pay off the debt at the end of the month, you can choose to use a credit card. However, if you know you do not have enough money in the bank to pay your statement in full that month, you should not charge anything on your credit card.
Create a budget
The best way to avoid credit card debt is by creating a monthly budget. Set your monthly spending limits. If you want to charge something that’s outside your budget limit, don’t charge it unless you really need it. For example, suppose your car broke down and you didn’t have the money to pay for repairs. In this case, you could charge the cost on your credit card but do have a clear plan for how you will pay it off.
Pay off the balance at the end of each month
Many people prefer making the minimum monthly payments, which means they will be in debt to the the credit card company for a very time. The interest payments over that period of time will continue to accumulate and in some cases, you might end up paying more than double the principal amount. Therefore, it is important to pay off all or most of the balance each month. If you are already heavily in debt, stop using your credit card until you clear your debts. Using your card when you are already struggling with debt will only increase it and land you in even more trouble.
Make payments on time
Make sure that you make the payments before the due date. Late payments usually mean penalties, which also can accumulate from one month to the next. If you are late with your payments on more than one occasion, many credit card companies will bump up your interest rate. Late payments also affect your credit score, along with your chances of getting approved for another card or for certain types of loans.
Use just one or two cards
Although you are not obligated to use just two credit cards, it is advisable to stick with just two. This will make it easier to make the monthly payments as well as to track all your purchases. Having multiple cards makes it harder to keep track of your purchases. You also run the risk of forgetting to make a monthly payment on one of the cards, which may have serious consequences. If you use one card to pay off the balance on another, your debts are getting out of control and you need to do something about them.
These are the main ways of avoiding credit card debt. However, if you are already behind on your monthly payments, you should consider other options to get out of debt. You should talk to a professional and ask him or her to help you choose the option that would best suit your needs.