Unfortunately, many American families are dealing with an overwhelming amount of credit card debt. The most recent government statistics show reveal that the average family is dealing with almost $9,000 in credit card debt. If you’re not already part of that statistic, keep it that way. Use these 10 steps to help you avoid credit card debt.
1. Charge what you can afford to repay.
The easiest way to avoid credit card debt is to keep your purchases at an affordable level. It’s when you start charging things you can’t afford that you begin to encourage credit card debt. When you charge more than you can afford, it takes longer to pay off your balance.
2. Get the right credit card.
There are different credit cards for different spending habits. Before you apply for a credit card, look at its features – the annual fee, the grace period, the interest rate – to see if it meets your needs. If you get just any credit card out of desperation, you’re more likely to end up in credit card debt.
3. Know your interest rate.
Your interest rate affects the amount you pay for credit. The higher your interest rate, the higher your monthly interest charges, the fee known as a finance charge. Your interest rate can be incentive to pay off your credit card balance. For example, if you have a high interest rate like 29%, you’re more like to pay off your credit card balance than if you have a lower interest rate, like 4%.
4. Read the fine print.
Often buried in the text of your credit card agreement are details that could help you avoid credit card debt. For example, the penalties associated with going over your credit limit or making a late payment. There may be fees on your credit card that you wouldn’t realize unless you read your credit card agreement.
5. Understand the consequences of credit card debt.
Knowing that credit card debt has serious effects might be enough to steer you away. People who are deep in credit card debt have been known to be severely depressed and devastatingly, some commit suicide. There are less extreme, but still negative effects of credit card debt. Being in credit card debt keeps your money tied up. As long as you owe the credit card companies, you’ll never be able to spend your hard earned money on the things you want.
6. Treat your credit card more like cash.
Studies show that people are less likely to spend cash compared to a credit card. That’s because we feel a certain pain when we have to separate with our cash. While you don’t immediately lose cash when you use a credit card, you’ll eventually have to spend money paying down your credit card bill. If you spend with your credit card the same way you would with cash, you’ll keep your credit card balances at a reasonable level that’s easy to repay.
7. Keep only a few credit cards.
The more credit cards you have, the more credit you have available for using up. Having several credit cards makes it easier to charge up balances that you can’t afford to repay. If you have more than one credit card, “what you can afford to repay” should the split among all your credit cards. For example, if you can only afford to repay $300 in credit card debt a month and you have 3 credit cards, then you can only afford to charge a maximum of $100 on each of your credit cards. Limiting your credit cards makes it easier to avoid credit card debt.
8. Pay your bill on time.
Late payments have many consequences. You get charge a late fee. Your interest rate could go up. The late payment gets updated on your credit report. Your next minimum credit card payment will be even higher. You’ll have to pay the minimum payment from the previous month, the minimum payment from the current month, plus a late payment fee. The more delinquent you become on your credit card, the harder it is to get caught up because your minimum payment continually increases.
9. Recognize the signs of credit card debt.
Often people could avoid credit card debt if they only knew they were headed that way. You might be on the road to credit card debt if you’re only making minimum payments on your credit card, you’re charging everyday items, or you’re using balance transfers to avoid making a credit card payment. If you recognize you’re headed toward credit card debt, change your spending and payment habits to get control of your debt before it grows too large to handle.
10. Avoid credit cards.
Of course, the most obvious and easiest way to avoid credit card debt is to avoid credit cards all together. If you never use a credit card you don’t get the chance to accumulate any credit card debt. Of course, we need credit cards to help build a good credit history, so completely avoiding credit cards may not be feasible. Since that’s the case, rely on the other nine steps talked about above to help you avoid credit card debt.
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