3 Tips to Avoid Credit Card Debt

May 18, 2023

Your credit card is one of the most important, but potentially perilous, financial resources you have at your disposal. Using a credit card correctly can allow you to make significant purchases, earn rewards, and build your credit score to assist with securing loans. However, if you’re not using your card wisely, you can also build up overwhelming credit card debt very quickly.

Carrying too much credit card debt means you’ll pay more in interest, damage your credit score, and be prevented from reaching your financial goals. But credit card debt can be avoided as long as you follow good financial management habits like these:

1. Stay on Budget – It can be tempting to make purchases that you might want or need, but can’t afford right now. Stick to your spending plan each month and save up for the things you want instead of putting them on your credit card to buy right away.

2. Don’t Miss Payments – Staying on schedule for making your credit card payments will help you build your credit score as well as avoid going into debt. Incurring late fees from not making your payments on time can strain your budget further and add to your debt total. Additionally, paying your balance in full each month is always recommended.

3. Keep a low credit-utilization ratio – Your credit-utilization ratio is the percentage of credit you’re currently using. So, for a credit card with a $1,000 limit, if you make $450 in purchases in a month, it would be considered 45% utilization. As a general rule, you should keep your utilization ratio below 30% of your available credit. The higher your ratio percentage is, the more difficult it will be to pay off your debt and the more it will negatively impact your credit score. However, it’s also a good idea to avoid 0% utilization, as this can cause you to be “credit invisible” after an extended period.

If you follow these three tips and maintain sound money management, you can make the most of your credit card while avoiding taking on serious debt that will impact your financial goals.

Tags: Tips and Tricks, Credit Cards, Budgeting