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Did you know that the average U.S family carries over $5000 of credit debt? That's a lot of money to be spending on interest payments. The good news is that there are many ways to avoid credit card debt.
Here are 20 steps on how to avoid credit card debt.
Avoid Credit Card Debt: Step-by-Step Guide
Step 1: Make Sure You Have A Safety Net
To avoid going into credit card debt, you first need to make sure that you have a safety net in place. Have at least three months of living expenses saved up in case of an emergency.
Emergency funds are important because they can help you avoid taking out high-interest loans or credit cards in a time of need.
Step 2: Create A Budget
The best way to avoid overspending is to create a budget and stick to it. Ensure that your budget includes room for both fixed and variable expenses, and try not to exceed your monthly allotment for discretionary spending.
There are many different types of budgets and budgeting programs. You can find one that fits your needs by checking out sites like Mint or You Need A Budget.
Step 3: Use Cash Whenever Possible
When you use cash instead of a credit card, you're less likely to overspend because you can physically see how much money you have left. In addition, using cash also helps keep track of where your money is.
Step 4: Only Buy What You Can Afford
It's important to remember that you should only buy what you can afford. Just because you have a credit card doesn't mean that you have to use it for every purchase.
If there is a large purchase you want to make, sleep on it first to ensure you want it and then save up for it instead of going into debt.
Step 5: Avoid Unnecessary Balance Transfers
It's tempting to transfer your balance from one card to another when in debt, but this is a bad idea. The balance transfer will make it harder for you to pay off the debts later and may even increase your interest rate.
Step 6: Always Pay Your Balance on Time
One of the simplest ways to avoid credit card debt is always to make sure that you pay your balance on time. Paying on time will help keep your interest rates low and may even improve your credit score.
Also, ensure you are not only making the minimum payment. That's how credit card companies trap you into paying more in interest. Paying off your balance in full every month ensures that you will not accrue interest.
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Step 7: Avoid High-Interest Credit Cards
It's essential to choose a credit card with a low-interest rate. Otherwise, you'll end up paying more money in the long run. Stay away from cards with annual fees as well.
With interest rates sometimes up to 26%, you could be paying $50 or more extra every month just in interest.
Step 8: Make a List of Your Monthly Expenses
Before you start using your credit card, make a list of all of your monthly expenses to know how much you can afford to spend each month.
You can use programs such as Mint to help you keep track of your expenses.
Step 9: Use Your Card for Emergencies Only
Only use your credit card for emergencies. Smart credit card usage will help you stay out of debt and avoid paying interest on unnecessary purchases.
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Step 10: Learn to Recognize the Signs of Credit Card Debt
If you're starting to feel overwhelmed by your credit card debt, it's important to know the signs to take action before it's too late. Some of the most common warning signs include missing payments, going over your limit, and having a high balance-to-credit ratio.
Step 11: Use a Debit Card for Daily Purchases
If you're trying to avoid using your credit card for every purchase, consider using a debit card instead.
Step 12: Avoid Cash Advances
Cash advances are one of the biggest traps for credit card debt. These loans often have high-interest rates and fees, so it's important to avoid them.
Step 13: Avoid Lending Out Your Credit Card
It can be tempting to lend your credit card to a needy friend, but this is a bad idea. If the person doesn't pay you back, you'll be responsible for the debt.
The fastest way to cut a friend out of your life is by loaning them any money.
Step 14: Beware of Store Credit Cards
Store credit cards can be very tempting because they often have low-interest rates and rewards programs. However, these cards can also be dangerous because the interest rates tend to be much higher than regular credit cards.
Step 15: Create a Separate Account for Your Credit Card Debt
If you're having trouble keeping track of your spending, consider creating a separate account specifically for your credit card debt.
Step 16: Understand the Terms of Your Credit Card Agreement
It's essential to understand the terms of your credit card agreement before you sign up. Having a grasp on the terms will help you avoid any surprises down the road. Remember, always read before you sign up for anything.
Step 17: Request a Lower Interest Rate
If your interest rate is high, consider contacting your credit card company and requesting a lower rate. You may be surprised at how willing they are to work with you.
Step 18: Limit the Number of Credit Cards You Have
It's tempting to apply for as many credit cards as possible, but this can be a bad decision. Having too much available credit can lower your FICO score over time and make it difficult to get approved for other loans such as mortgages and car loans.
Step 19: Pay Attention to Your Credit Usage
Your credit usage is the amount of money you owe divided by your total available credit. Ideally, you should try to keep this ratio as low as possible so that your score doesn't suffer too much from interest fees and penalties.
Step 20: Limit Your Wants and Focus on Your Needs
When trying to avoid credit card debt, it's important to focus on your needs and not get caught up in the hype of wanting more things. If you can resist buying unnecessary items, you'll be able to pay off your cards quickly while avoiding penalties and interest fees along the way.
Avoid Credit Card Balances
Keeping track of your expenses, using a debit card for daily purchases, avoiding cash advances, and avoiding store credit cards are some great ways to prevent credit card debt. As long as you know the signs of credit card debt and can hold yourself accountable if you start slipping, you'll be just fine.
As a certified credit counselor and syndicated writer at MaxMyMoney, Max has coached over 250 Millennials to help take the stress out of money. When Max is not coaching, you'll find him reading financial books, indoor cycling, or visiting local pawn shops looking for swiss-made watches.