What You Can Do to Avoid Credit Card DebtJuly 26, 2010 - 4:05 pm
Credit card debt is a curse that plagues millions of Americans. Though it seems like credit card debt has become the American way, you don’t have to follow in the footsteps of those who took on more credit card debt than they could afford. In fact, you can do what it takes to avoid credit card debt before you ever apply for a credit card.
Make sure you understand the credit card you choose.
Part of the credit card selection process includes reading the terms and conditions of that credit card. All credit offers are required to give you a set of disclosures that let you know how much that credit card costs. The disclosure will include the interest rate and fee structure of the credit card. If a credit card has a high interest rate or fees you can’t avoid (like an annual fee), look at some other, less expensive options before you apply for that credit card. When you know how and when a credit card charges, you can tailor your credit card use to avoid the fees.
Decide upfront that you’ll pay your balance in full each month.
Credit card companies have their rules, you should have yours. Make the decision that you’ll always pay off your balance when the bill comes. You’re more likely to stick to that plan when you make the commitment upfront. Paying off your credit card bill each months keeps you from accumulating debt. It also keeps you from paying finance charges, which can be expensive depending on your balance and interest rate.
Don’t stop at just the decision to pay your balance in full each month. You should also decide what you’re going to do when you don’t pay off your balance completely. For example, will you cut up your credit card? Or maybe put it away until the balance is paid off?
Charge only what you can afford to pay back.
Your credit card balance should never be higher than what you can afford to write a check for right this moment. If you’ve run out of money in your checking account or you don’t have enough cash to make a purchase, it’s not a good idea to use your credit card to make up the difference. That’s how credit card debt happens.
Credit card users get in trouble when they start using their credit cards as an extension of their checking accounts. A credit card balance isn’t extra money that you can use on top of the money you actually have. It’s better to think of your credit card balance as a reduction of the money you actually have. For example, if you have $500 in the bank and a $100 credit card balance, you really only have $400 in the bank.
Don’t get too many credit cards.
The more credit cards you have, the harder it is to keep up with the balances on all of them, making sure that you haven’t charged more than you can afford. Fewer credit cards – like one or two – are easier to manage and reduce the likelihood that you’ll incur credit card debt. Before you apply for a credit card, take a look at the credit cards you have and decide whether you can actually afford to carry another credit card balance.