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Whether you're just starting out with your first credit card or striving to manage your spending better, these eight strategies will help you steer clear of debt while using your credit card wisely.
Credit cards are valuable tools for significant purchases and improving your credit score. Many credit cards also offer rewards, such as cashback or airline miles, which make them appealing. However, their ease of use can lead to a rapid accumulation of debt.
As of 2024, the average American owes $6,329 in credit card debt, according to calculations by TransUnion based on the Federal Reserves most recently released data. This kind of debt can feel overwhelming and hinder your ability to save for important financial goals. Thankfully, there are effective ways to prevent falling into deep debt. Let's dive into it.
How to Avoid Credit Card Debt: 8 Strategies
Whether you're experienced with credit cards or just getting started, it's essential to actively protect your finances. Here are a few steps to help you avoid accumulating debt:
Credit Card tip 1: Only use credit when you have to
How the payment service Kasheesh can help you limit credit card debt
For those who find it challenging to manage credit cards responsibly, it may be wise to limit their use or avoid them altogether.
When using a credit card is a must, try to charge only the portion of a purchase that you truly need to finance.
One helpful tool is Kasheesh, which allows you to split payments between multiple cards, including both debit and credit.
For example, if you need to pay something for $500 but only have $300 in your checking account, rather than charging the full amount to your credit card, you could pay $300 with your debit card and only charge the remaining $200 to your credit card.
This way, you reduce the amount of debt you take on, limiting it to what’s absolutely necessary while making use of your available funds more efficiently.
Learn more about how to split payments beween debit and credit here.
Also consider reading:
• Debit vs Credit Cards: The Pros and Cons of Each
Credit Card tip 2: Live within your means, when possible
The best way to steer clear of credit card debt is of course by paying your full balance each month. To do this, you’ll have to ensure you’re only charging what you know you can afford.
Your credit card should ideally be used as a tool to build credit and break up large purchases into smaller payments—avoid using it to buy unnecessary things (such as a new TV or purse) beyond your ability to pay off during the billing cycle.
If you have to rely on carrying credit card debt to afford your monthly expenses, like food and bills, that’s another dilemma. In this scenario you’ll have to either increase your income or start budgeting better to keep your expenses down.
Credit Card tip 3: Don’t open too many accounts
Though many credit cards offer enticing perks, opening too many accounts at once increases your chances of accumulating debt. Managing multiple cards also complicates keeping track of due dates and spending.
Furthermore, opening several accounts within a short period can negatively affect your credit score, and you may be denied new accounts if you apply too frequently.
If used wisely, a credit card can enhance your financial well-being and build strong credit. Follow this advice, and you’ll avoid burdensome credit card debt while feeling more financially secure.
Credit Card tip 4: Aim to always pay on time
Along with paying off your balance, it’s crucial to make timely payments. Late payments lead to costly fees that inflate your balance, making it tougher to catch up. If your budget allows, consider making multiple payments each month.
Most banks also offer automatic payment options, allowing funds to be withdrawn directly from your checking account before your bill is due.
Credit Card tip 5: Build an emergency fund
Emergencies can arise that disrupt your budget, leading to increased reliance on your credit card.
To prevent this, start saving for emergencies by building a fund that can cover three to six months' worth of expenses. This way, when unexpected costs hit, you can tap into savings instead of charging it to your card.
If you’re living paycheck-to-paycheck this might seem like an unachievable goal, but even a few dollars per month add up over time. The easiest way not to touch the money is to have them automatically taken out of your account and moved to a savings account that you don’t log into very often. Out of sight, out of mind!
Credit Card tip 6: Maintain a Low Utilization Rate
As we mentioned in tip 1, ideally, you should pay off your card’s balance in full every month–but if that’s not feasible, aim to keep your utilization ratio low.
This ratio represents the percentage of your credit limit in use. For instance, if your credit limit is $5,000 and you’ve spent $2,500, your utilization rate is 50%. Keeping a high utilization rate can make it challenging to pay off debt and may lower your credit score. Additionally, you’ll end up paying more in interest.
Strive to keep your utilization rate below 30%.
Also consider reading:
• 7 Ways To Improve Your Credit Score Fast
Credit Card tip 7: Understand your credit card terms
Understanding the details of your credit card agreement will help you avoid unexpected fees and stay on top of payments.
Each credit card comes with different terms, including interest rates and potential fees. Before using your card, carefully review the agreement to know when fees will apply, how interest is calculated, and when rates may increase.
Select a card that aligns with your spending habits and financial objectives.
Credit Card tip 8: Pay down as much debt as possible
To avoid falling into more credit card debt, make it a priority to pay off as much of your balance as your budget allows each month. Interest fees will make your debt grow if you only pay the minimum.
While it’s ideal to pay off the full balance and avoid interest altogether, that may not always be achievable. Instead, aim to reduce what you owe by making the highest payment possible.
Also consider reading:
• Snowball method vs. Avalanche method: Two Popular Debt Re-Payment Methods Explained
Top reasons people get into credit card debt
As mentioned, credit cards give you the ability to break large purchases into manageable payments. When used properly, they help you build a credit history and enable financial growth. They can even assist you in reaching significant financial goals, allowing for purchases that might otherwise be impossible with cash alone.
However, credit cards carry risks, and without understanding how they work, borrowers can fall into common traps, including:
1. Ignoring credit card interest rates
Credit cards have an interest rate, known as an APR (Annual Percentage Rate), which reflects the yearly cost of borrowing. This interest is charged on any unpaid balance, meaning if you don’t pay off your card, interest accumulates, adding to your debt.
APRs are often high, ranging from 15% to 20% or more, making it essential to pay off your balance to avoid steep charges.
Also consider reading:
• How Is Credit Card Interest Actually Calculated?
2. Making only minimum payments
The minimum payment is the smallest amount you’re required to pay each month. However, only paying the minimum allows interest to build up and compounds daily.
This practice leads to long-term debt, where you continue owing more, even without additional spending.
3. Having too many credit cards
While having several credit cards can provide diverse rewards, it also increases the risk of overspending. Managing multiple cards, each with its own payment date and interest rate, can make it challenging to keep track, leading to missed payments and higher debt.
4. Spending more than you make
Credit cards provide access to immediate purchasing power, but it’s easy to overspend when you’re not using cash. Spending more than you earn can rapidly lead to a debt load that outweighs your income. Avoid this by being mindful of your spending and resisting impulse purchases.
Want more credit card tips? Also consider:
• 10 Common Credit Card Mistakes To Avoid
• 9 Common Credit Card & Credit Score Myths and Misconceptions
Kasheesh lets you split payments and purchases across up to five cards, including debit, credit, and even prepaid gift cards. This can help you minimize credit card debt by letting you pay what you can afford with your debit card and only making a partial charge of the remaining amount to your credit card.
