Many people use credit cards nowadays to pay for almost everything because of its convenience. Though they can be handy, you are more vulnerable to accumulate debt using it compared to when you pay with actual cash.
You might develop an unhealthy mindset where paying for purchases later encourages you to spend more—and usually for unnecessary things—because you have time to save up for them.
You have to watch out because using credit cards have a tendency to make you overlook how much you’ve actually spent—until the time comes that you have to pay for it.
Check out these five tips on how to use your credit card wisely to keep out of debt.
Understand Your Credit Card
The crucial part in preventing credit card debt is that you understand your credit card and its terms. Knowing the specific terms and agreements can help you keep track of your payments and avoid unexpected fees. Every bank has different interest rates and other fees, and methods of credit card processing.
Before using your credit card, make sure you go through every document given to you and read all the agreements, terms, and fine prints available. Understand when you will be charged for fees, especially interest rates, late payment fees, how interest rates are applied, and when they will increase.
Some cards do not charge any interest for a specific amount of time, but after a while, interest rates will apply and this may shock you if that happens. Do not let these factors put you in a bad situation, so be sure to understand your credit card very well right from the beginning.
Try to use your credit card only during emergencies. Some of these situations are:
- Need to pay for hospital bills and medications
- Unexpected urgent repairs at your home
- Unprecedented gas consumption and no extra cash available
Never use your credit card just to buy luxury items or retail items, especially if you are the type who likes to shop often.
Spend Within Your Means
Treat your credit card like your debit card or cash. If you cannot afford it, then don’t purchase it thinking you will have time to save up and pay for it the next month. This is a big no-no if you want to stay away from credit card debt. If you really want to buy something, then save money for it and make sure you have it ready before you purchase the item.
Keep track of all your expenses and make sure that your monthly income is still bigger than your monthly expenses. Your income should sustain your needs and wants. Owning a credit card is a commitment. If you know that you cannot pay your balance in full monthly and if you can’t control yourself from overspending, then don’t commit.
Pay On Time
Having a clean slate every payment due date is not only good but you don’t not have to pay interest rates. You need to remember that late payment fees are never better than having none at all. Every time you waste without paying your balance is an additional fee to your balance, making you lose more money than you can make.
Paying your bills on time or ahead of time is an excellent habit for you to keep track of your monthly expenses. Set one day where you run your errands and pay for all your bills, so that you can always prepare for it ahead of time. The best thing you can do is make a reminder on that date on your phone calendar so you can easily remember it.
Avoid Having Multiple Accounts
Unless you are actually financially stable and ready to have multiple cards, one credit card is really all you need. Having multiple accounts might be more difficult to handle because there are different payment dates, and you might lose track of them. When all the late payment fees accumulate with interest, you are bound to get doomed.
Stick to one card and always pay on time and in full. This way, your credit limit and credit standing will be better, and this will make you feel more financially secure as time goes by. If you have a good credit standing, it will not be hard for you to open up another account in the future.
Avoid Going Beyond Your Credit Limit
Let’s say you have a limit of $20,000. Spend below that limit, maybe around $10,000-$15,000, and never go over your limit. You need to have the willpower not to spend too much, especially on retail items and unnecessary purchases. Plan ahead where you really need to use your credit card.
You may want to use it for something that has a set amount monthly, such as:
- Paying for your monthly rent
- Gym membership which you just pay off monthly or yearly
- Paying for your phone bills, monthly utilities, and groceries—although you have to be careful about these things as you may go beyond your usual expected amount
One way to stay away from spending too much using your credit card is leaving it in your car or at home when you go to the mall. Unless you have everything already planned and need your credit card, leave it behind. This will help you stay away from the temptation of buying something you don’t really need in the first place.
The Bottom Line
Being organised is the best way to not to have credit card debt because you get to monitor your expenses and pay them in full every month. Keep a notebook or a record of all your financial transactions. You won’t ever have to experience paying credit card debts if you keep these points in mind.
As your credit limit gets higher, you need to be more responsible. You might need the extra cash in the future, instead of paying extra for the balance. Always keep your credit cards safely and use them wisely!