As of December 2019, Americans carried a record of $4.2 trillion in credit card debt. If this number is broken down properly, each household owes an average of $6,194 in credit card debt.
Chances are that you currently owe credit card debt, and you need to get out of it fast and also prevent more debt in the future. However, you can’t pull this off if you don’t know how to avoid credit card debt.
Hence, in this post, you will learn some of the best strategies you can start employing right now to avoid credit card debt and stabilize your finances.
What Is Credit Card Debt?
Credit card debt is the amount of money you owe a financial institution or creditor for using a credit card issued to you. Credit cards usually offer a line of credit (lent money) that you can use to freely purchase things until you reach a limit. You would have to make a minimum monthly payment to clear your debt.
How Do You Avoid Credit Card Debt?
The best-known way to avoid credit card debt is by using your credit card infrequently or not using it at all. By learning to use only cash or a debit card to make purchases, you won’t be subjected to using credit cards, thereby avoiding credit card debt at the end of the month.
Benefits Of Avoiding Credit Card Debt
If you used to doubt the importance of avoiding credit card debt, here are some of the main benefits of building a financially-stable life without having to incur any credit card debt:
- No Extra Payment On Interest
There’s no way you can pay back the same amount of money you spent from your line of credit. You must pay back the debt in interest. In fact, you should know by now that’s the only way your creditor gets to make money. But if you don’t pile up any credit card debt, you won’t have to spend extra money on interest while paying back the debt.
- Flexible Budget
You could be making a lot of money every month and spend most of it on paying off credit card debt. This is why most people don’t know how to stop living paycheck to paycheck. They exhaust most of their earnings on credit card debt repayment instead of budgeting their income to serve other important purposes.
If you want to be able to budget your income every month and meet your financial goals, you must learn to avoid credit card debt. Ensure you live below your means to prevent overspending. This is because you will be compelled to bail yourself with credit cards after overspending.
- Opportunity To Invest
You could be missing many life-changing investment opportunities because you don’t know how to avoid credit card debt. If you want more options with your money, you need to stay away from debt. When a significant portion of your monthly income isn’t claimed by debt, it is easier to invest in your future by saving for retirement and building an emergency fund.
Setting aside a few hundred dollars every month in an investment savings account is a brilliant way to prepare for retirement and build a financial wall around your family. To make this possible, ensure you don’t limit your finances by incurring credit card debt.
- Saves You Money
Saving money is easier when you don’t have to worry about paying off any debt at the end of the month. You can save money towards that special trip, new car, or birthday celebration you are planning for. You can set up a financial goal and go after it with your savings without being pulled back or slowed down by credit card debt.
- Prevents Impulse Buying
Knowing how to avoid credit card debt will prevent you from making impulse purchases. The reason for this is that credit cards are one of the common reasons why people succumb to impulse buying.
For example, if you walk into a grocery store with your credit card, you may not feel the need to limit your spending because you already believe that your credit card will handle the expenses easily.
This leads to impulse purchases, and it’s not helping your finances. But as soon as you get used to avoiding credit card debt by not using your credit cards frequently, you will be able to prevent impulse buying.
10 Best Ways To Avoid Credit Card Debt
If you want to avoid credit card debt, here are 10 strategies you should be using right now:
1. Build An Emergency Fund
This is one of the most effective ways to avoid credit card debt. When you don’t have access to an emergency fund, the quickest way to help yourself out financially is by using credit cards. Before you know it, you would have incurred a lot of credit card debt.
This is why it’s important to build a financial wall around yourself by setting up an emergency fund. The money you save in this emergency fund should cover unexpected expenses like medical bills and car repairs.
Although it takes time to build an emergency fund well enough to cover up to 6 months of expenses, you should start saving towards it now. A monthly savings of $500 to $1000 will go a long way in securing your finances. If you haven’t done this before, here is a post that will enlighten you on how to build an emergency fund in 7 steps.
2. Purchase Only What You Can Afford
You can’t learn how to avoid credit card debt when you keep spending money on things you can barely afford. You will be tempted to spend beyond your capacity when using a credit card because you assume that your credit line can cover it. However, that’s a very speedy way to entrap yourself into credit card debt. You need to develop a habit of purchasing items that you can honestly afford, and that’s how to learn to live below your means.
If you need to make a big purchase, then plan toward it. Make it a financial goal and start saving a certain amount of money every month until you can purchase it. This will improve your money mindset and teach you how to reach your money goals.
3. Avoid Unnecessary Balance Transfers
To pay off your credit card balance at a lower cost, you may be compelled to transfer a balance from a high-interest rate card to another with a lower interest rate. Although this appears to be a smart move, it is not one of the reliable strategies to avoid credit card debt. This method can backfire when it’s being done repeatedly.
When you keep on transferring balances without paying off a more significant portion of the balance, you will have an ever-increasing balance once the balance transfer fee gets accumulated. This is why most experts don’t consider this as one of the best tips on how to avoid credit card debt.
4. Don’t Fail To Pay On Time
It’s important to stay on track with your credit card payments. When you start failing to pay your credit card balance when you ought to, you will begin accumulating debt.
For every payment you miss, the next payment becomes bigger, with extra money spent on penalty rates. Hence, make it a goal to always pay your credit before the deadline. If you allow pile-up, it becomes challenging to stay on track.
This is another reason you must learn to use your credit card moderately. The lesser amount you use from your line of credit, the easier it is to pay back. Most people find it hard to clear their credit card balances because they have spent a lot and incurred too much debt.
5. Don’t Lend Your Credit Card
Lending your credit card is obviously not a wise decision. For example, if you borrow an expensive car to attend an event, would you want to lend it to someone else? That’s too much of a risk to take. The car could get bashed, and you would have to face the consequences.
This same scenario applies to credit card usage. Your credit card is borrowed money; money that must be paid back in due time. Lending someone your credit is the same as lending borrowed money to someone.
If the person who borrowed your credit card is a spendthrift, you are in big trouble. You would have to repay money you didn’t even spend on yourself. If you must learn how to stay out of credit card debt, don’t lend credit cards as a way of offering financial support to anyone.
6. Understand Your Credit Card Terms
You shouldn’t accept a credit card when you haven’t fully understood the agreement between you and your issuer. From how interest rates would be applied to when you should clear your balance, ensure you grasp every piece of information on the terms and agreement. Understanding the terms of your credit card will encourage you to caution your spending habit.
Before applying for a credit card, you can review the terms. All you need to do is contact your credit card issuer and demand a copy of the credit card terms you intend to apply for. This is a simple tip on how to avoid credit card debt even before you start using the credit card.
7. Stop Using Multiple Credit Cards
If you currently use more than one credit card, you are shooting yourself in the foot. You should know that the more credit cards you use, the easier it is to pile up debt.
No matter how disciplined you are when it comes to spending money, you shouldn’t tempt yourself with thousands of dollars by using multiple credit cards. You may run into an emergency, and your credit cards may seem like the only way to bail yourself.
Reducing the number of credit cards in your possession is a good way to learn how to avoid credit card debt and limit your spending. It also enables you to manage your monthly bills easily.
8. Build A Budget
Building a budget is one of the best tips to avoid credit card debt. A working budget is expected to guide your spending habit every month by showing you the important expenses you should be spending money on.
It is easier to live above your means and spend recklessly without budgeting your income each month. Besides, you won’t be able to track your expenses easily until after you must have incurred a lot of credit card debt.
If you haven’t been building a budget, you should start right now. To help you get started, here is an article on how to budget your money in 5 simple steps.
9. Be Frugal
Practicing frugal living tips is one of the best ways to avoid credit card debt. By below your means and limiting your spending, you won’t have to use your credit card frequently, thereby reducing your balance each month. If you usually spend up to $5000 on your monthly expenses, find creative ways to reduce that amount drastically.
Examine your subscriptions, utilities, and even the amount you spend on food. If there are any opportunities to cut your living cost in these areas, don’t hold back. Make sure you reduce them. You would be improving your finances and learning to make the most of what you have by living frugally.
Aside from helping you learn how to avoid credit card debt, frugal living will also help you prepare for retirement. The money you save by spending less can be invested in a retirement fund to secure your future.
10. Increase Your Income
Learning different ways to avoid credit card debt may not prove helpful if your income is very low. You need to have a reliable source of income that conveniently covers your expenses. This way, it’s easier to manage what you have instead of resorting to using credit card debt to help yourself out frequently.
On the other hand, you can work two jobs. If your current job allows you to create time for another employment opportunity, you should get another job. Earning two paychecks every month will improve your finances significantly.
Final Words On How To Avoid Credit Card Debt
You don’t necessarily need to stop using credit cards in order to avoid debt. Nonetheless, you must be able to limit purchases made with credit cards. Usually, your credit card issuer won’t require any collateral from you before offering a line of credit. None of your properties can be seized or repossessed if you fail to clear your balances.
However, this shouldn’t encourage you to pile up credit card debt. Your credit score would be damaged when you frequently default on credit card payments. Remember, if you hurt your credit score, it would be difficult for you to be eligible for loans in the future, especially for mortgages.
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