We all love the perks of credit cards, like earning rewards and getting fraud protection. But sometimes it’s easy to get carried away. If you’re in over your head with credit card debt, dig yourself out with these simple tips.
1. Get on a budget.
Here’s the bottom line: The less you spend on credit cards, the more likely you are to pay off your balance in full each month. Create a budget with clear goals and stick to it!
You can use an app like Mint or YNAB (Your Next Budget) to track your expenses. You’ll need to include categories for income and savings as well as debts, investments, taxes and other spending.
These tools will help you make informed decisions about how much money should go where.
So when it comes time for paying off credit card debt or making large purchases (like a house!), you’ll be prepared financially.
2. Pay more than the minimum amount.
When you have multiple debts, the minimum payment is a trap. Don’t fall for it!
Let’s say for example that your credit card balance is $1,000 and the minimum monthly payment is $50/month. If you pay only the minimum amount due each month (at 8% APR), it will take over 16 years to pay off your debt!
And if you do actually manage to pay off all of that interest—which probably won’t happen—you’ll end up paying an additional $3,500 in interest payments alone ($1,000 at 8% APR x 16 years).
3. Know where your money is going.
You should keep track of your spending. You can do this by using a budgeting app, or a spreadsheet, or pen and paper, or notebook, or website/mobile app. Or you could go see a financial advisor.
But whatever you do, make sure that you’re keeping track of all your expenditures. And then use that information to develop some sort of plan for making sure those debts don’t get out of control in the future.
4. Only use your card when you have a plan to pay it off.
Make sure you have a plan to pay off your credit card balance. It’s important to only use your credit card for things you can afford to pay off in full. In addition, never use your credit card to pay for items that could be bought with cash or debit.
If you’re tempted to do so, ask yourself if there are any other ways that money could be allocated in your budget before deciding which payment method makes sense.
If nothing else, avoid using a credit card when buying things online or making online purchases. Unless these are big-ticket items (like furniture) where waiting until payday isn’t an option, you shouldn’t use your credit card.
These purchases are often made without consideration of how much they’ll cost—or how long it will take one’s bank account to recover from the expense.
This means many people find themselves trapped under mountains of debt because they didn’t consider these factors ahead of time.
5. Don’t overspend in order to earn rewards.
This is one of the biggest ways people get into credit card debt. They spend more than they can afford just to earn a reward, and then find themselves paying interest on the card balance.
While it may seem like a smart financial move, it’s not worth it if your goal is to avoid getting buried in credit card debt.
The best way to handle this without going broke is by sticking with cash or debit cards and leaving your rewards cards at home (or only carrying them when you know that you’ll be making purchases).
If you do have several types of rewards cards, consider using one as an everyday spending method and another for larger purchases. This way, you’re not tempted by big-ticket items that won’t be covered by regular cash back or miles programs.
if you have credit card debt, make a plan to pay it off and stick to it
If you are carrying credit card debt, make a plan to pay it off. A good rule is to avoid using your credit cards unless you have a plan for paying them off immediately.
In other words, if you charge something on your credit card and then pay the minimum monthly payment, you will be paying interest on your debt and will only get further into debt in the long run.
Instead, come up with a realistic payment schedule for yourself that allows for all of your bills to be paid on time every month (including rent/mortgage, utilities and food) so that any extra money can go toward paying down your debt.
If there’s no way around not using your credit card for every purchase, at least try not to overspend just so that you can earn rewards points or cash back! This also applies if someone else offered their rewards points as an incentive for making purchases through their account.
Bottom Line
We hope these tips have been useful and helpful. We know that credit card debt can be scary and overwhelming. But by taking it one step at a time, you can eliminate your debts sooner than you think.
Now that you have a brief understanding on how to avoid getting buried in credit card debt, take the first step by creating a budget.
