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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1. 10 Ways to Avoid Credit Card Fraud
2. How to Avoid Student Credit Card Debt
3. 9 Smart Ways to Use Your Credit Card

1. Pay the balance in full.

If you pay off your balance completely every month, you avoid the finance charges that can make having a credit card unnecessarily expensive. Not only that, if you keep a $0 balance, you eliminate the risk of running into credit card debt. Keeping your credit card purchases at an affordable level will make it easier to pay your balance in full each month.

2. Make your credit card payments on time.

Three things happen when you make a late credit card payment. First, you get charged a late fee. Depending on your card issuer and your credit card balance, your late fee can be as much as $39. Second, your credit card interest rate could increase. Starting February 22, 2010, you won’t get an interest rate increase for a 30-day late payment, but you will for a 60-day late payment. Finally, a late payment added to your credit report and remains there for seven years.  Late payments hurt your credit score and you ability to get credit cards and loan in the future.

3. Don’t charge a high balance.

There are two things wrong with running up a high credit card balance. First, it hurts your credit score because 30% of your credit score considers how much of your available credit is being used. A bad credit card leads to higher interest rates and even having some credit-based applications denied.

The second reason you shouldn’t have a high credit card balance is because it’s more difficult to repay. When you keep your balances low, it’s easier to pay them off, leaving you with no debt to worry about.

4. Don’t loan it.

Family and friends might ask to borrow your credit card and the best answer is “No.” Whenever your credit card leaves your possession, you have no control over what happens to it. The person borrowing your credit card could rack up a high credit card balance. Or, they may not be as careful with your credit card as you would be and it can be lost or stolen.

5. Use it or lose it.

If you want to keep your credit card, use it from time to time. One credit card issuer has been known to charge an inactivity fee when you don’t use your credit card within a certain period of time. That’s actually nicer than what most other credit card issuers do, which is close your credit card account. To you’re your credit card open, charge something on it periodically and repay the balance when the statement comes.

6. Keep it in a safe place.

Unfortunately, there are people out there who would love to get their hands on your credit card. Even your credit card number would be a credit card thief’s dream-come-true. Keep your credit card in a safe place where it can’t be stolen easily. When you’re out in public, don’t leave it out in the open, because a thief even take a picture of your card or even memorize your credit card number.

7. Monitor your billing statement and inserts.

Make sure you read your credit card billing statements completely and report any suspicious activity to your credit card company. Since credit card companies include important announcements with your billing statement, it’s important that you read everything in the envelope with your billing statement.

8. Leave it open.

When it comes to your credit score, there’s nothing to be gained by closing a credit card account, especially one that still has a balance. In fact, closing a credit card is more likely to hurt your credit score than to help it.

If you want to reject your credit card issuer’s changes to your credit card terms, you may have to suffer through a temporary blow to your credit score. That’s because you have to close your credit card account to reject the change in terms. Fortunately, your credit score will recover as you pay off your credit card balance.

9. Let your kids see you pay the bill.

Children can easily believe credit cards are magic money since they never see what goes on behind the scenes. When your child is old enough to understand, let him or her watch you pay your credit card bill. Explain that the payment you’re sending to the credit card company comes from your paycheck and takes away from the money you have to spend on other things. You may use cash to help explain what’s going on.

Using your credit card the right way lowers the overall cost of using a credit card. It builds your credit score and keeps you out of credit card debt. There are better reasons than those to use your credit card the smart way.

Related posts:

1. 10 Ways to Avoid Credit Card Fraud
2. 10 Ways to Avoid Credit Card Debt

As you evaluate whether a credit card is right for you, consider both the advantages and disadvantages of credit cards.

Advantages of Using a Credit Card

Credit cards allow you to put off paying for purchases. Many people use a credit card because of the “buy now, pay later” feature. Credit cards allow you to make a purchase today and pay for it sometime in the future.

You don’t have to carry as much cash. Keeping $1,000 in cash in your wallet is dangerous. If the money is lost or stolen, it’s gone forever. Having a credit card with a $1,000 credit limit is safer. You can spend the same amount of money without the great risk of losing your money.

Credit cards offer more purchase protection. Federal laws allow you to dispute certain types of credit card charges directly with the issuer. For example, if order a product that’s damaged when you receive it, you can dispute the charge with your credit card issuer and avoid paying until the manufacturer replaces the item. If you’d paid with cash or check, you would be out of the money.

They help you build a credit history. You need a credit history if you want to buy a house or car, rent an apartment, even to get a cell phone in your name. Without a credit history, you face paying higher costs or even being denied for certain services.

With credit cards, you can make purchases over the internet. Most internet purchases require you to use a credit card. You can use a debit or check card for internet purchases, but a credit card offers more buyer protection in the case of damaged or missing merchandise and even in instances of credit card fraud.

You can use a credit card for emergencies. When an emergency comes up and you don’t have immediate access to cash, a credit card can be a lifesaver. You might need to pay for car repairs or a cover medical expense. Or, you may need a hotel stay for a couple of nights. A credit card can come in handy in unexpected financial situations.

Disadvantages of Credit Cards

Credit cards are more expensive than cash when you don’t pay your balance in full. If you don’t pay your balance off during the grace period, you’ll end up paying interest on the balance. The longer it takes you to pay off the balance, the more you pay in interest. When you use cash for purchases, you only pay for the cost of the purchase, not extra interest charges.

Credit cards encourage debt. Credit cards give you a false sense of your purchasing power. If you’re not careful, you can quickly charge up a balance that’s too high to pay. No one plans to get into credit card debt. Once you start using credit, you realize how easy it is to make purchases, and you start charging more. Keep credit card purchases to a minimum and pay off one purchase before you charge another.

Credit card issuers can change the terms (almost) at will. When you carry a credit card balance, the credit card issuer is in control. They can raise fees, increase interest rates, and close your credit card at their discretion. When card issuers change your credit card terms, you may be forced to pay off your credit card balance under the new terms. Other times, you can reject the credit card changes, but you have to give up your credit card to do it.

There’s an increased risk of credit card fraud. Thieves can steal your credit card, or even just your credit card number, and use it to rack up charges on your credit card bill. Credit card fraud can be difficult to detect, especially if you don’t monitor your billing statement. The good news it that you can avoid liability for stolen credit card charges by reporting the stolen credit card immediately. At most, you will only be liable for $50 in stolen credit card charges and that’s if you delay reporting a stolen credit card.

Make a Credit Card Work for You

Sure, credit cards have their drawbacks, but they have advantages, too. You can lessen the negative effects of using credit cards, by following a few guidelines:

• Pay your credit card balance in full every month.
• Monitor your billing statements closely and let your card issuer know about any suspicious activity.
• Keep your credit card purchases low so you can quickly and easily pay them off.
• Be careful about loaning your credit card, even to family and friends.
• Report a lost or stolen credit card immediately.

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