Without a doubt credit cards can be a strong financial tool if you want convenience, security and rewards. However, if you don’t manage your card carefully, it can gradually become a huge financial stress for you due to mounting debt. In order to avoid credit card debt, you don’t just have to focus on making your payments on time, in fact, you need to learn how to practice healthy financial habits that can help you use credit as a tool and not just another financial trap.
For those who find themselves already deep in debt, exploring credit card debt relief programs is a crucial step. Today we are going to jot down some of the best and the most practical strategies you can use to avoid credit card debt and to balance your finances.
Starting with;
1-Create A Realistic Budget
It goes without saying that your very first line of defence against credit card debt is a realistic budget. With a budget you’ll be able to control where your money goes instead of wondering where it went.
Here’s how you can create a budget;
- Track your spending: The very first step is to track where your money goes at least for a whole month. It’s best to use a spreadsheet or budgeting applications for convenience.
- Separate your needs and wants: Categorize your expenses. For example, jot down the essentials including grocery, electricity bills and rent etc. Then jot down the discretionary expenses like dining out and subscriptions etc.
- Set clear limits: Assign a specific spending cap to each one of the categories and then strictly stick to it.
- Review monthly: At the end of the month, review your budget and make changes to it if you don’t think it meets your income and goals.
With a realistic budget, you’ll be able to spend less than what you earn and that’s exactly how you avoid relying on credit cards. Stick to the budget religiously and see how it changes things for you. If you’re already struggling to stay ahead, our self-assessment guide can help you understand if relief is right for you.
2-Use Credit Strategically And Spend Smart
It’s a fact that credit cards offer rewards and convenience but that doesn’t mean you swipe it unnecessarily. Every swipe must have a reason behind it. In a nutshell, you should try and avoid impulsive buying. Here are some useful strategies that can help you do so;
- Only use your card for planned purchases: Use your card only for the items that you’ve already budgeted for. Don’t buy “extras” using your credit card or else you’ll end up spending more than what you can afford.
- Always pay your balance in full every month: Ideally, your credit utilization ratio needs to be below 30% and most importantly if you want to prevent high interest then it’s best to pay your balance in full before the due date.
- Limit your cards: Too many credit cards can become difficult to track. If you want to spend under your budget then stick to as few cards as you can.
If you want to use your credit card smartly, make sure you are swiping it only for the necessities. It shouldn’t serve you as an extension of your income. While prevention is key, when debt becomes overwhelming, effective credit card debt relief can offer a fresh start.
3-Build An Emergency Fund
One of the main reasons people end up in credit card debt is unexpected expenses. Medical bills, car repairs or loss of job etc, can happen to anyone but if you are wise enough, you’ll have an emergency fund prepared to deal with such situations. An emergency fund acts as your safety fund. You should have at least 3 to 6 months of expenses saved. You don’t necessarily have to start big. Even if it’s just $25 or $30, start small and save it to build the momentum.
Here’s how you can grow your fund;
- Automate the transfer of your savings every time you receive your paycheck.
- Make sure your emergency fund is easily accessible but it should be separate from the account that you use on a daily basis.
- Once you use the funds, replenish them immediately.
In a nutshell, when you start relying on your emergency fund instead of credit cards for emergency situations, you protect yourself from high interest credit card debts. However, if you’re already struggling, professional credit card debt relief can provide a path forward.
4-Use Credit Responsibly
If you want to prevent any future debts and want to lead a financially stable life then it’s of utmost importance to first learn how to use credit responsibly. As said earlier, even though the whole point of a credit card is “convenience”, you still need to be really careful when using one because if not managed, it can spiral out of control quickly.
Here are some of the best practices that can help;
- Late payments won’t just hurt your credit score but it’ll also increase the interest rate and additional fees. It’s important that you make your payments on time to avoid such additional costs.
- Keep your credit utilization ratio low. In simpler words, you should spend less than 30% of your available credit limit.
- Review your credit card statements every now and then to ensure there are no errors or fraudulent charges. It’s also useful if you want to track your spending.
- Understand and review the terms of your card carefully. You should know the details including the APR, annual fee and the grace period.
- Making minimum payments every month will just prolong your debt and the interest will also increase over time.
If you want to build a strong credit history, use your credit responsibly. Not only will it help you stabilize your financial situation, in fact, it’ll be easier for you to qualify for low interest loans, rent apartments and secure certain jobs.
The Long Term Rewards Of Staying Debt-Free
The long term rewards of staying debt-free go far beyond your wallet. From shaping your mindset to opening doors to more opportunities and bringing you peace of mind, you get to enjoy it all when you clear your debt and prevent any more accumulation of credit card debt. Here are some more long-term rewards:
1-Greater Financial Stability And More Flexibility
When you don’t have any monthly debt obligations to worry about, you’ll have enough income saved for other purposes including traveling, savings and investing. Being debt-free means you’ll always be prepared to face any unexpected events in your life without panicking.
2-Significant Savings From Avoiding Interest
Credit card interest can wreak havoc on your financial health. When you stay debt-free, you’ll be able to save all that money and spend it somewhere useful. Here are the long-term effects;
- You’ll be able to save thousands over a lifetime
- You’ll be able to save more for retirement, savings and investments
- You’ll be able to move towards financial independence at a faster pace.
3-Stronger Credit Profile
Practicing a debt-free lifestyle can help you build a strong credit profile mainly because;
- Your credit utilization ratio will be low
- You won’t be missing or delaying any payments
- You’ll be maintaining a small number of accounts
A strong credit profile can open doors to a lot of opportunities for you and that’s only possible if you avoid credit card debt and practice financial discipline.
4-Ability To Take On More Opportunities In Life
People who don’t have any debt to worry about, they find it easier to;
- Change careers
- Start a business
- Start a degree
- Relocate in case a better opportunity comes
In simpler words, without debt obligations, you’ll be more free and it’ll be easier for you to make your decisions in life. If you really are eager to put an end to your debt-cycle then don’t hesitate from seeking help, these common debt relief myths might change your perspective.
Overall Verdict
You don’t specifically need to put strict restrictions on yourself to avoid credit card debt. In fact, all you need to do is to stay consistent with your efforts, live within your budget and have a backup emergency prepared at all times. The simple trick here is to use your credit cards as tools and not as extensions to your income. You should only use cards for your convenience and to ensure that you don’t end up with mounting debt, pay your dues on time every month so that it doesn’t affect your credit either. Use the above-mentioned preventative strategies to enjoy the benefits of credit cards without worrying about getting stuck with debt.
FAQs
Q1. What Is The Biggest And The Most Common Reason Behind Credit Card Debt?
There are multiple reasons why people end up with credit card debt but mostly it’s due to the unexpected life events like a medical emergency, car repairs or any form of emergency. Such sudden expenses can lead you to credit card debt especially if you don’t have an emergency fund prepared. Moreover, sometimes the root cause is overspending, impulse purchasing and poor budgeting as well. If you prevent such issues, it’ll be a lot easier for you to avoid such debt.
Q2. Is It Better To Close Any Unused Credit Cards In Order To Avoid Temptation?
Well, it’s not always a great idea to close your credit cards even if you don’t use them because if you do so, it’ll affect your credit score and will reduce your total available limit as well. If temptation is the main issue here then it’s best to put your card somewhere inaccessible or simply freeze it.
Q3. Is It Better To Use A Debit Card Instead Of A Credit Card?
Yes, debit cards are better as compared to credit cards because with debit cards, you’ll only be using the money you have. Typically, people use debit cards for discretionary expenses and credit cards for bills and expenses that are more predictable and can be paid off easily.
If you are looking for professional guidance on how to get out of and prevent credit card debt then try Mountains Debt Relief. With our expertise and experience, we’ll help you put an end to your debt-cycle forever.