There’s no doubt that having a credit card offers many great benefits and even advantages. Credit cards can make life so convenient, that is until you find yourself in credit card debt. The way you use your card should be taken very seriously and you should try to avoid the buy now pay later mentality at all costs. If you don’t believe this just look at the average credit card debt in this country. The average family carries $8,000 in credit card debt in the United States according to the American Bankers’ Association. If you don’t want to find yourself part of this statistic then make a plan for your credit card use and review these tips for staying out of debt.
- Figure out why you want a credit card
It may sound like a no brainier, but knowing why you want a credit card can be the different between ending up in credit card debt or not. Why do you want a credit card? Is it to buy things you can’t afford like new furniture for your apartment or do you want to build your credit. Knowing why you want a credit card is the absolute first place to start so you don’t end up in credit card debt.
- Choose the right credit card
Staying out of credit card debt begins long before you start making purchases. You first need to choose the right card. There are so many cards out there today that it can get confusing and even a bit overwhelming. Do your research and find a card that fits your spending habits. Resist the temptation to go with the first offer you receive in the mail and instead go online and research the different cards available. Learn about the different interest rates, payment terms, fees and charges and of course the application requirements. Only after doing this type of research should you start applying. If you are a first time credit card user take your time and don’t get sucked into all the fun adds that are trying to real you in.
- Know the terms and conditions of the card
Knowing the terms and conditions of the card is very important. There are so many different card terms that knowing the difference between them can determine how you use your card. Each card functions differently and knowing how your card functions can keep you on the right path.
- Follow a budget
Its no secret that following a budget takes discipline. Its not easy and it takes work. The easy part is devising the budget and that is half the battle. Just looking at your expenses each month verses your income is a good start to making good financial decisions. Seeing the numbers in front of you can sometimes be enough to jump start you into gear. As you look at each expense ask yourself if it is a necessary expense and if you can reduce it at all. For example, your rent or mortgage is a necessary expense, but is your cable t.v. with every available option necessary. For some the answer will be yes, but for others it might not be necessary and you can reduce that bill.
- Only make everyday purchases
One rule of thumb that will help you stay out of credit card debt is to only make purchases with your credit card that you would normally make. This would include things like gas, bills, groceries, and other things you determine necessary. A big screen t.v. would not fit into the category of necessary unless you have been saving up for it. In that case, use your credit card for the purchase and then pay it off. You get in trouble when you use your credit card for things that you can’t afford to buy.
- Pretend minimum payments don’t exist
Paying only the minimum payment each month won’t get you anywhere that you want to be. As a matter of fact, if you only pay your minimum payment your balance can very easily swell up and get out of control quickly. Your minimum payment drops as your balance is paid, but because of compounding interest, you will end up paying for a long, long time if you pay only the minimum. To see an example use a debt calculator to get a better picture and check out how much interest you will pay over the life of the debt.
- Make your payment early
A smart rule to set for yourself is that you will always make your payment early. Late payments are reported to the credit bureaus and can lower your credit score. By making a rule that you will make your payment early will reduce the chances of having a late payment. Plus if something unplanned happens like card trouble, having your credit card payment already out of the way might not interfere.
- Ask for a lower credit limit
You can always ask your card company for a lower credit limit. If they offer you a $5,000 limit go ahead and ask for a $2,500 limit instead. Adjust your credit limit to an amount that is within your means. If you are someone that is tempted easily by a high credit limit then you should definitely consider reducing it.