Americans are carrying a record of $4.2 trillion in credit card debt as of December 2019. That breaks down to an average of $6,194 in credit card debt per household. Carrying too much credit card debt comes with a number of risks—thousands of dollars in interest payments, delayed financial goals, and possible even damage to your credit score. Credit card debt can be avoided, as long as you maintain spending and payment habits that help you avoid getting yourself in over your head.
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Build a Safety Net
Without access to emergency savings, a credit card may be your only option to save you from a major car repair, medical bill, or other unexpected expense.
While it takes time to build the oft recommended savings large enough to cover six months of living expenses, starting with a small amount like $500 or $1,000 can help you take care of those little expenses that pop up. You can build your emergency fund steadily over time rather than having to rely on debt to rescue you.
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Stick to What You Can Afford
Access to credit can be tempting when you spot items you want to purchase but really can't afford. While you might rationalize that you can easily pay over time, promising your future income is risky. A better habit: save up for things you want rather than putting them on credit and only swipe your credit card for purchases you can afford to repay right away.
Transferring a balance from a high interest rate credit card to one with a lower interest rate is a smart move to pay off your balance at a lower cost. However, transferring balances to outsmart the credit system, for example to avoid a payment due date, can backfire. Repeatedly transferring balances without paying off a significant portion of the balance can lead to an ever-increasing balance once the balance transfer fee is tacked on.
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Always Pay on Time
Staying on track with your credit card payments is one of the best ways to avoid credit card debt. Once you miss a payment, your next payment due will be much higher since you'll have to make two payments plus pay the late fee. It gets tougher to catch up, puts a strain on your budget, and tempts you to use your credit cards to make ends meet.
Note
The late fee for one missed payment can be up to $29. A second missed payment in a six-month period can incur a fee as high as $40, depending on your credit card. And two missed payments in a row can trigger the higher penalty rate and cause a spike in your monthly finance charges.
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Pay Your Full Balance Each Month
Paying your entire balance each month is the best way to avoid credit card debt. Starting with a zero balance each month completely eliminates the risk of getting into credit card debt. You never have to worry about whether you can meet the minimum payment because your credit card has already been paid in full. To pull this off, you have to be disciplined and only spend as much as you can afford to pay off in a single month.
Recognize the early warning signs of credit card debt allows you to pull back on your current spending habits and replace them with moves that benefit you in the long run. For instance, if you notice your credit card balance is too high to pay in full, it's a sign that you've charged too much. Curbing your spending until you've paid off the balance will prevent you from making your debt worse.
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Avoid Cash Advances on Your Credit Card
In a moment of desperation, you might consider taking out a cash advance on your credit card. However, it's one of the most expensive credit card transactions with a transaction fee, higher interest rate, and no grace period for avoiding finance charges. Lack of access to non-debt money sources could signal serious financial trouble.
Note
A cash advance usually is one of the early stages of credit card debt. Work on fixing your budget and create an emergency fund so you don’t have to use a cash advance in an emergency.
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Don't Lend Out Your Credit Card
You're ultimately responsible for all the charges made to your credit card and lending your credit card puts control of your credit card balance with someone else. If the go on a spending spree and refuses to pay up, your credit card issuer still holds you accountable for repaying that balance.
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Understand Your Credit Card Terms
Your credit card agreement spells out everything you need to know about using your credit card—how interest will be applied, the fees you'll be charged and when, and anything that could cause your to go up. Understanding these features of your credit card can help you avoid credit card debt because you understand how using your credit card costs more.
Note
You can review the credit card terms before applying for a credit card. Contact your credit card issuer for a current copy of the terms of any existing credit card.
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Limit Your Number of Credit Cards
The more credit cards you have, the greater the opportunity to get into debt. Even if you have solid self-control, it's better not to tempt yourself with thousands of dollars in available credit. Reducing the number of credit cards in your wallet not only helps you avoid credit card debt, it also makes it easier to manage your monthly bills.
Credit card tip: Spend within your means. The best way to avoid credit card debt is to pay your balance in full each month. In order to reach this goal, make sure you're only spending within your means.
Credit card tip: Spend within your means. The best way to avoid credit card debt is to pay your balance in full each month. In order to reach this goal, make sure you're only spending within your means.
4. Pay More Than the Minimum Payment. One of the most effective strategies when managing credit card debt is paying more than the minimum monthly payment.
While it's highly unlikely that any credit card company will forgive 100% of your debt without it being part of a bankruptcy, you may be able to negotiate a settlement with your lenders in which they forgive a percentage of the balance you owe.
Outside of bankruptcy or debt settlement, there are really no other ways to completely wipe away credit card debt without paying. Making minimum payments and slowly chipping away at the balance is the norm for most people in debt, and that may be the best option in many situations.
The 20/10 rule of thumb is a budgeting technique that can be an effective way to keep your debt under control. It says your total debt shouldn't equal more than 20% of your annual income, and that your monthly debt payments shouldn't be more than 10% of your monthly income.
Pay on time. Paying your credit card account on time helps you avoid late fees as well as penalty interest rates applied to your account, and helps you maintain a good credit record. ...
The two most popular strategies are to pay off balances with the highest interest rates first or to pay off the lowest balances first. The former will save you more money over the long run, but the latter can help you keep momentum and see progress.
According to cardholder reports, Bank of America uses a 2/3/4 rule: You can only be approved for two new cards within a 30-day period, three cards within a 12-month period and four cards within a 24-month period.
To pay off $2,000 in credit card debt within 36 months, you will need to pay $72 per month, assuming an APR of 18%. You would incur $608 in interest charges during that time, but you could avoid much of this extra cost and pay off your debt faster by using a 0% APR balance transfer credit card.
It will take 41 months to pay off $30,000 with payments of $1,000 per month, assuming the average credit card APR of around 18%. The time it takes to repay a balance depends on how often you make payments, how big your payments are and what the interest rate charged by the lender is.
This repayment strategy, sometimes called the avalanche method, prioritizes your debts from the highest interest rate to the lowest. First, you'll pay off your balance with the highest interest rate, followed by your next-highest interest rate and so on.
Start by making at least the minimum payments on all your credit cards to avoid late fees and penalties. Then, focus on paying off the credit card with the highest interest rate first while making minimum payments on other cards.
With the snowball method, you pay off the card with the smallest balance first. Once you've repaid the balance in full, you take the money you were paying for that debt and use it to help pay down the next smallest balance.
Make the minimum monthly payment on each, but throw all your extra cash at the highest interest debt. This is sometimes called the debt avalanche method of repayment — “avalanche,” because you're prioritizing taking down your most expensive debts in the long term first.
Introduction: My name is Saturnina Altenwerth DVM, I am a witty, perfect, combative, beautiful, determined, fancy, determined person who loves writing and wants to share my knowledge and understanding with you.
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