When used responsibly, credit cards are a powerful tool. Each time you swipe your card, the bank is giving you an interest-free loan, so long as you pay it back within the grace period, which is usually around a month.
Using credit, however, can make it a little too tempting to spend money you don’t have. When you can’t pay your balance in full at the end of the month, finance charges (interest) start to pile up. Depending on your balance and interest rate, an unpaid credit card balance can grow to an unmanageable size very quickly.
The average American carries over $6,000 in credit card debt. To avoid ending up like the average American, use your card the right way. Here’s how.
Pay Your Bill in Full Every Month
Paying off your entire credit card bill each month is the only way to avoid getting charged interest, period. It’s the single smartest thing you can do with a credit card. For some people, it’s easier to make multiple payments throughout the month—maybe on payday—than one large sum when the bill arrives. That’s okay, too.
If unexpected expenses leave you unable to pay the full bill, however, don’t panic. Pay as much as you can and be sure to pay at least the minimum payment before the due date. Then, plan to pay off the rest. In this situation, it’s best to put the card away and avoid charging anything else to it until you can pay your bill.
Make Payments on Time
The credit card company won’t require you to pay your full bill each month, but it will give you a minimum payment you must pay by the due date. Failing to pay the minimum on time will hurt your credit score and add a late fee onto your balance. If you’re a forgetful person, consider setting up an automatic payment in your bank that covers the minimum payment each month.
Spend Within Your Means
One famous study showed that people were willing to pay almost twice as much for basketball tickets when they used credit cards instead of cash to pay. For this reason, it’s important to be disciplined when you pay with plastic. To avoid overspending, buy only what you can afford to pay for with cash, and make a budget and stick to it.
Lower Your Limit
Consider lowering your credit limit to keep your spending in check. Lowering your limit to an amount that you can manage each month is as simple as calling the credit card company and asking. For building your credit score, it’s best to keep your balance lower than 30% of your total limit. This is called your credit utilization ratio.
Choose Cards with Rewards
Rewards are one of the biggest upsides of spending with a credit card. Whether you redeem points for travel rewards, cash back, or something else, credit card rewards can be a great way to upgrade your lifestyle with the regular spending you do every day.
Only Use a Credit Card for Big Purchases
Speaking of everyday spending, we often don’t realize that small purchases like a $5 coffee or a $20 top-up of gas can really add up. It’s common for credit card users to feel like the debt snuck up on them.
Some responsible credit card users only use their cards for major purchases. A smart strategy is to save up for your purchase first, only making the purchase on your card once you have the cash to pay it off. Then you can reap the rewards of using your rewards card without falling into the interest trap.
Buried in Debt? Talk to a Bankruptcy Lawyer
Even if you’ve already learned the hard way about what can happen when credit card spending gets out of hand, it’s never too late to start fresh. If high credit card balances are ruining your life, bankruptcy may be a good option for you.
Benson Law Firms offers qualified and compassionate legal counsel to residents of Missouri and Illinois who are down on their financial luck. Contact our offices today for a free bankruptcy consultation.
