10 Simple But Useful Strategies to Avoid Credit Card Debt
Let’s face it – we all hate credit card debt. However, credit issuers love nothing more than to collect interest and make more money due to our inability or reluctance to pay off what we owe on time. Today, nearly 30% of Americans have accumulated debt between $1,000 and $5,000, whereas 6% have debt exceeding $10,000.
Therefore, regardless of your income or financial circumstances, debt is just one of the realities of life and something that may not always be in control. Or could it be?
According to veteran investors and experienced financial professionals, staying out of debt is possible. However, before learning different strategies to avoid debt accumulation, you must first understand why debt is bad for you.
In this post, we’ll explain the cons of credit card debt and share ten simple but useful ways to avoid a balance on your credit card.
Why Is Credit Card Debt Bad for You?
The money you owe to credit issuers limits the amount of money you have to spend on other expenses or important purchases. Whether buying your dream car or going backpacking through Eastern Europe, debt could stop you from the lifestyle you want for yourself.
Here are a few reasons why credit card debt is bad for you:
1. Debt Can Keep Your From Owning Real Estate Properties
Buying a home has always been regarded as one of life’s most important purchases. However, the current generation is suffering from unprecedented levels of debt due to inflation, unemployment, rising property values, and student debts. Therefore, they don’t have the same buying power as the previous generations.
As a result, their mortgage loan applications typically get turned down if they exceed 43% of their income. Hence, they’re stuck with rental options until they can clear off their debt or reduce expenses.
2. Debt Can Make You Sick
When people are in debt, they tend to worry about payments and accumulate stress and anxiety. This anxiety can trigger more severe problems, including depression, migraines, and even heart attacks. According to studies, the more credit card debt you accumulate, the greater the chances of facing serious health complications.
3. Debt Can Damage Relationships
Debt often creates a lack of financial security, leading to insecurities in homes and social circles. Those with debt have less to spend and are easily overwhelmed by piling bills and other expenses. As a result, people often damage their relationships with their parents, spouse, and children, especially when debt is created due to poor spending habits.
4. Debt Can Reduce Your Credit Score
Finally, the more debt you accumulate, the greater impact it has on your credit report, as 30% of your score is determined by the ratio of your spending limit to the balance you owe. Even if you don’t actively use a card for purchases, your score will still affect your purchases and financing.
10 Smart Ways to Avoid Credit Card Debt
1. Don’t Buy It If You Can’t Afford It
Most newbie credit card owners think their credit limit gives them the license to purchase things they can’t pay for in cash. If you’re following a similar spending approach, understand that the spending limit is merely an illusion created by card issuers to prompt users to maximize their interest payments.
Ideally, if you want to avoid credit card debt, you should try to buy things you can afford in cash at most times, except in emergencies, of course. This tactic offers a psychological benefit as well. Knowing you have enough cash to clear your debt, you can avoid stress and other health complications.
2. Never Leave a Balance on Your Monthly Payments
This piece of advice may sound redundant, but the best way to avoid credit card debt is to ensure you pay off your balances in full. By clearing your debt as you go, you won’t have to pile up debt on your card to an overwhelming amount and fail to have sufficient funds to pay everything off when the time comes.
Ideally, once you swipe your card, you should log into your account immediately to pay it off. You can make this payment immediately, a few hours later, or before your next purchase. It’s up to you. The goal is to stop payments from piling up.
You can also try the 15/3 hack to split your monthly payments into more manageable chunks so the balance appears more manageable.
3. Keep Your Expenses the Same After Pay Increases
There’s no better feeling than getting a raise or promotion at work. With more money, your spending power increases, meaning you can buy more material things and enjoy different experiences you couldn’t afford.
Although, this doesn’t mean you should. Making more money than before doesn’t mean you have to increase your expenses. Sure, you can spend more freely. However, this could lead to even more debt than ever before.
Instead, you should either save or invest your increment amount and adhere to the same budget as before.
4. Always Have an Emergency Piggybank
Another reason many people accumulate credit card debt is that they have no other funding source when they need money during emergencies. Consequently, they often exceed their credit utilization ratio limits or delay their payments.
Thus, having an emergency piggy bank or fund is essential for just-in-case situations, especially medical emergencies. Ideally, every credit card user should have six months’ worth of their salaries or monthly expenses saved up at all times.
5. Don’t Opt for Multiple Cards
You might have heard about the benefits of owning multiple cards. However, just because those benefits exist doesn’t mean you would be able to reap them since they’re usually tied to several factors, such as utilization, payment history, etc.
However, for casual users owning multiple cards can result in irresponsible spending. In some cases, users lose track of their payments and eventually accumulate more debt than they should’ve.
6. Put Your Needs First
As much as we like to deny it, there’s always enough room in our spending budgets to cut unnecessary expenses. The trick is to determine what qualifies as needs and what qualifies as wants. For instance, food is an essential expense. However, eating out at restaurants every day is not. Similarly, you need fuel or electricity to power your vehicle.
However, this doesn’t necessarily mean every errand requires driving. You could walk, take a bike, or opt for public transport.
The purpose of determining needs and wants is to plan your essential and luxurious expenses. The more additional expenses you can shave away, the more money you can save and avoid credit card debt.
7. Make a Budget
One of the best ways to manage your monthly expenses is to create a monthly budget encompassing all your essential expenses, including groceries, bills, rent/mortgage, fuel, etc. The key here is to set a realistic amount you can or are willing to spend for this period and not exceed it at all costs.
Depending on your lifestyle, you can create a different budget for other expenses, such as travel, fine dining, shopping, etc. This way, you can keep track of your spending and ensure you save every month.
8. Stay Away From Cash Advances
The last thing you want to do with your credit card is to use it to have cash on hand. Using your credit card this way will only incur a higher APR and other unnecessary changes. Only use the credit card for cash advances as a last resort when you have no other alternatives.
9. Active Expense and Balance Tracking
While tracking your expenses might not help you save money, it could keep your spending in check. All you need is a sheet or software tool to track where and when you swipe your card, especially if you have multiple accounts. With a better picture of your finances, you can make proactive decisions about your future expenses for that particular month.
For instance, you can skip eating out or shopping for clothes if you’ve exceeded your weekly spending limit.
10. Become a Coupon Collector
Collecting grocery coupons might be considered old-school. However, even today, millions of people, especially the older generation, use coupons to save thousands of dollars on household staples every year. So, if you’re looking to reduce or avoid credit card debt, collect coupons to reduce the amount you spend on groceries, which ultimately reduces your overall balance.
Wrapping Up
You might think that many of these strategies to avoid credit card debt involve limitations and restrictions. You’re not wrong. For decades, credit cards have helped consumers manage their expenses. However, they’ve also prompted irresponsible consumers to accumulate thousands or even millions of dollars in debt.
Therefore, limiting yourself when it comes to using credit cards is a wise strategy.
