Credit cards are an extremely powerful financial tool, but it can also damage your credit score and get you into debt. That said, credit card debts can easily be avoided as long as you keep track of your spending habits and make your payments on time. Here are 5 tips that help you stay out of debt when using your credit card.
- Build emergency savings: Unless you have access to an emergency fund, you may be forced to rely on your credit card to pay for unexpected medical bills, major car repairs, or other such expenses. While it does take time to build your emergency fund, you can start small by putting away amounts as small as a few hundred dollars every month. This will help you take care of expenses that may unexpectedly pop-up.
- Buy only what you can afford: With a credit card, you may be tempted to buy things that you can’t afford. However, this can become a dangerous habit since you are hoping to cover your current expenses with future income. Instead, consider saving up for the things you want and paying in cash once you’ve saved up enough.
- Make payments on time: Making your credit card payments in full and on time is the best way to avoid getting into debt. Keep in mind that if you miss a payment, your payment for the following month will likely be a lot higher since you’ll have to make two payments and the late fee. Over time, doing this will make it harder for you to catch up.
- Recognizing the warning signs of debt: It’s important to recognize the early signs of credit card debt so you can make amends to your current spending habits, and replace them with money moves that will actually benefit you. For instance, if you notice that you have not been able to pay off your credit card debt in full for the last few months, you may want to stop charging expenses to your card and focus on repaying your outstanding balance.
- Avoid getting cash advances on your credit card: This is a useful feature – we get it. In an emergency, you may consider taking a cash advance on your credit card. This, however, has an extremely high transaction fee, a high rate of interest, and no grace period. So, avoid doing this.
In addition, make sure to understand the terms and conditions of your credit card and limit the number of cards you have to avoid getting into debt.