Some of my favorite things about credit cards are that they allow you to spend flexibly, to get rewards that range from travel to cash back and to avoid hardships associated with having a short-term financial shortage or emergency. Arguably one of the worst things about them, though, is how expensive it can be when that convenience becomes long-term credit card debt.
You can avoid getting into credit card debt by canceling all of your cards, but that leaves you fewer options in case of emergencies. It also hurts your credit score, meaning you’ll have less access to things like mortgages and car loans — the kinds of debt most people need to navigate life.
Instead, use your credit cards wisely by adopting my three best strategies to keep credit card companies working for you — through mechanisms like cash back on purchases — instead of you serving them.
The Best Strategies To Avoid Getting into Credit Card Debt
1. Run the Numbers
One of the better ways to be responsible with your credit cards is to stay on top of the various numbers associated with your cards. For example, make certain you know your annual percentage rate (APR), the dates of grace periods for purchases, what dates you might be hit with a finance charge and how much interest you might pay in a given month if you carry a balance.
Beyond that, most cards have both tools and traps for their users. Knowing these will help you reduce expenses both with your card and with other things on which you spend money. Some of the most common include:
- Rebate programs — Sometimes this means points, miles or cash value. Knowing how these work and what value they provide helps you make the most out of each card.
- Fees (especially late and annual fees) — These can hit your card with a balance you don’t expect, potentially creating cascading fees as that balance goes unpaid.
- Discount programs with partner vendors — This increasingly common credit card benefit can save you serious money if you’re able to navigate the sometimes complex landscape.
And, of course, keep a close eye on how much you spend using credit cards, compared to how much you can afford to pay off before the end of your grace period. You don’t want to carry a balance, whenever possible.
2. Only Use It as a Credit Card
If you stick with making simple purchases within your budget, it’s hard to get caught by unexpected fees or charges. However, credit card companies offer some services for which they charge a premium fee. Those fees can add up quickly, putting you in credit card debt when you didn’t expect it. The three most common of these services are:
- Balance Transfers –This means taking the balance you carry on one loan, and moving it to a credit card. These sometimes come with low-interest offers, making them look very attractive. However, they always come with a balance transfer fee that can often exceed the interest you would have paid if you’d left the original loan alone.
- Cash Advances — If you need cash quickly, you can use a “convenience check” to take it from your available credit card balance. These invariably come with an additional fee, and many are charged at an extra-high interest rate. Using this option is almost never worth the cost.
- ATM Functionality — A few cards let you withdraw money at an ATM, using them just like your bank card. This is even more convenient than a “convenience check” but comes with all the fees and extra interest of a regular cash advance. Plus, you’ll pay off-bank ATM fees on top of it all.
Maintain an emergency fund instead of relying on your credit cards for sudden situations. That will avoid the need to use these tempting but costly offers.
3. Practice “Credit Hacks”
Beyond the larger topics I mentioned above, there’s a host of smaller practices you can use to keep your credit card liabilities low. Some of them apply to everybody. Others apply to only a few. But you should read them all, and see which ones you can use to keep yourself on the straight and narrow:
- Delete the auto-filling option of credit cards from your home computer and smartphone. Adding the extra step of filling out credit card info every time will help you avoid impulse online shopping.
- Don’t carry your credit card in your wallet or purse. Instead, keep it in a drawer and take it out only when you need it. Like the autofill technique above, this helps reduce impulse shopping.
- Think carefully before accepting a credit limit upgrade. It’s nice to have that extra “padding” but also increases the temptation to begin carrying a balance.
- Shop for a new credit card once a year, and don’t hesitate to change which one you use the most based on the deals and offers for each card. Just make sure not to cancel or close any of your older credit cards — the longer you’ve had a card, the better your credit score. Store the cards you’re not currently using somewhere safe.
As with so many other things in life, the key with credit card debt is moderation. Use credit cards to make your financial life easier, while resisting the temptations that would lead you to carry any kind of debt. Allow yourself to spend with a credit card only when it’s smart, while “buckling down” when it’s less sensible. Use your credit cards as tools and avoid turning them into toys.
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