Credit card debt is a modern crisis, with the nation’s exceeding $1 trillion, according to Bankrate. The convenience, the disconnect between the mind and the piece of plastic in your hand and the ability to spend money you do not have make it easy to rack up debt.
However, credit cards do not cause financial problems for everyone, and by taking certain steps, you can use a credit card without sinking into debt.
1. Create a budget
Make a detailed budget listing your monthly expenses and income. Allocate a portion of your pay to your credit card balance. There are online resources that can help you carefully portion out your income so you know exactly how much you can spend and still address your debt. Consider including an emergency fund in your budget so that if a crisis occurs you will not necessarily have to charge large, unexpected amounts to your card.
2. Pay your balance in full each month
Credit card companies make money by enticing you to spend beyond your means to the point where you are unable to pay off the debt regularly, thus accruing interest, which in turn inflates the entire debt in an endless cycle. To avoid this, try to pay off your credit card balance in full each month, or, if you are unable to do so, aim to pay more than the minimum payment to reduce the amount of interest you will owe; this helps keep your debt in a manageable range so you can eventually pay it off.
3. Use credit wisely
Only use your credit card for purchases that you can afford to pay off in full when the bill comes due or for emergencies. Avoid using your credit card for impulse purchases or non-essential items since this feeds into the cycle of overspending and interest that causes your debt to grow ever larger.
4. Negotiate lower interest rates
If you have a high interest rate on your credit card, consider calling your credit card company to negotiate a lower rate. Having a lower interest rate can help you pay off your balance more quickly and avoid even more debt piling up.
While credit card debt can quickly become a sinkhole and is a major issue in the U.S., it does not have to be the end of the world. You do not need to completely avoid credit cards either; if credit card debt does become unmanageable, you have options like filing for a Chapter 7 bankruptcy to discharge your debt or a Chapter 13 bankruptcy to restructure it and get you on a reasonable payment plan. However, managing credit with care can help avoid the need to do so.
