4 Tips To Avoid Building Credit Card Debts
That sale you see in an online ad lures you into taking out your credit card from your wallet. However, the next thing that startles you is your massive credit card debt. It might be challenging not to buy the things you want, especially if an online retailer shows 70% off on all their products. Nonetheless, the following are four tips to help you avoid building credit card debts.
Set a Budget and Stick with It
A credit card gives you the ability to pay for things that you can’t purchase immediately. But, staying out of debt begins with knowing the amount of money you can and can’t spend.
Create a realistic budget and, if possible, take this step as soon as you receive your first credit card. Always take into account each movement of cash or credit from your account. Take note of every purchase you make, including groceries, movie tickets, medical bills, and loan payments.
Your budget should be akin to a rulebook that you must follow. Remember, you can’t develop a game plan if you can’t stay on track.
One technique to ensure that you don’t spend more money than you should is to follow the 50/30/20 rule. The trick here is to split your monthly salary into the following three categories:
● 50% of your income goes to needs, such as payments for rent and groceries
● 30% goes to your wants, such as watching movies or going on dates
● 20% goes to debts and savings
Also, don’t forget to document expenses that don’t happen monthly, like annual gym membership fees and regular car maintenance.
Don’t Spend Money You Don’t Have
Credit cards bring the “pay for it later” mindset in several people. Use your credit card only when you need it, and not for every time you see the word “Sale” flashing on your computer or mobile screen.
If you don’t have enough money to pay your credit card bills immediately, then don’t use it at all. You might rationalize that you can pay the new debt over time. However, your future income will be at risk of receiving more deductions than intended if you spend beyond your means.
Here’s a better credit-saving habit. Save real cash to buy the things you want. Think of this technique as putting money in a cookie jar before you spend your hard-earned cash. Once you’ve got enough money saved (in a cookie jar or otherwise), you can use your credit card to purchase the item. Then, use the money saved to pay your credit card bills.
The cash saved should help you avoid building credit card debts. Furthermore, possessing the capital to pay bills on time should also help boost your credit score.
Own One or Two Credit Cards
Another temptation you should avoid is owning more than one or two credit cards. Bank and credit card companies like to offer new cards to interested customers because of the different potential benefits in store for the user.
However, these “advantages” lure you into purchasing more than you should. For example, one credit card offers a 10% rebate for every $1,000 purchase. You might think that you must always hit that $1,000 mark so you can “save” that $100.
That’s not all, because another credit card company may be offering some other “benefits”. Therefore, you feel the “need” to use that card to claim those benefits.
The lure to spend increases with each credit card you own. However, if you only have one or two credit cards, there will be fewer such baits and you can track your purchases easily. Furthermore, you won't feel pressured to use multiple credit cards for the purchase of goods.
Don’t Increase Your Budget Ceiling
The challenge of staying out of debt isn't in the monthly or annual income earned. You can call yourself financially stable only if you can avoid spending more cash than intended.
If your spending power increases (perhaps because of a bonus, raise, or tax refund), put the additional cash in your savings account. Don't spend the money on satisfying your wants.
Put the extra cash in an account that accrues interest over time. The additional money in the form of interest will help grow your account balance. Also, it's always nice to see your cash flow situation improve.
Conclusion
Stay away from accumulating credit card debts. Remember, you should set a budget and stick with it. Try tricks like the 50/30/20 rule. Don’t spend money you don’t have and never increase your budget ceiling. Own only one or two credit cards. Follow the tips mentioned above and you’ll be on your way to avoiding credit card debts forever.