5 Smart Moves To Avoid Debt Traps With Your Credit Card
-
Written by
Laura Bogart
-
Edited by
Amen Oyiboke-Osifo
Remember when you were a kid, and sinking into quicksand seemed like the worst possible fate to befall the heroes in your cartoons? Nothing seemed worse than getting that stuck. So you avoided that sand pit on the playground and thought yourself totally safe. But as an adult, you’ve realized that there are other ways to get stuck in life, and you’re terrified of getting mired in the quicksand of debt.
Check Out: Essential Dos and Don’ts for Using Credit Cards Wisely
Read Next: Ways To Elevate Your Summer Travel Adventures
You know, being caught in a debt trap is easier than it seems, especially with credit cards. You also know that your credit card can be a valuable financial tool. But how can you get the most out of it without needing Indiana Jones to toss you a rope so you can climb out of financial quicksand? There are some smart moves to make that will help you avoid debt – while even building good credit that can serve you well long-term.
Make Your Payments On Time
Okay, this one seems like a no-brainer. But think of how easy it is to get caught up in your daily life. By the time you’ve hustled the kids off to school and finished that report at work, paying your credit card bill has slipped your mind. Ah, but your credit card company hasn’t forgotten – and neither will your credit report.
According to Experian, payment history has the single biggest impact on your credit score: In fact, it’s 35% of your score. Falling behind can mean falling deeper into debt.
So, what are the smart moves to make? Experian recommends setting up autopay for your bills each month or enabling text alerts for due dates. If you can’t afford to make a payment on time, contact your credit card company right away – they could be more willing to work with you than you’d think.
Pay More Than the Minimum Amount Owed
While you may believe that paying off your minimum balance every month is enough to keep you debt-free, you’d be wrong. Indeed, your remaining balance will continually accrue interest, which can snowball your debt. If you’ve got a higher interest rate, you could be on the hook for years to pay even a modest balance.
The solution is simple: Pay more than the minimum every month. Even small amounts can have a big impact in how swiftly you can reduce your debt and save on interest. Taking this step can not only help you get out of debt now, outlets like iTHINK Financial say it can positively impact your financial future: “Not only will this lighten your financial load, but it can also have a positive impact on your credit score by lowering your overall balance and improving your credit utilization ratio.”
Track Your Spending
Some surprises, like finding a puppy, are great. Other surprises, like a bill you weren’t expecting, are not. While there’s no guarantee that you can find a puppy every month (and that would get messy after a time), there are ways to ensure you don’t get a surprise bill every month.
Most major credit card companies have mobile apps that allow you to view your current balance and past transactions. Some apps come with itemized expense trackers that enable you to track your spending across common categories like housing, groceries, or other bills – and, if they’re sophisticated enough, they’ll let you sort those categories based on your needs or wants, as well as level of importance.
Heal Your Money Mindset
It’s tempting to regard your credit cards as “free money,” since you’re not using any of your own cold hard cash at the moment you’re making that massive purchase. Remember, it’s borrowed money that you absolutely have to pay back, with interest. When you whip out your card, ask yourself if you’ll be able to pay back this purchase when your balance comes due. If the answer is no, then you need to rethink how you’re using credit.
You may also need to rethink how you approach spending in general. It could be time to do an inventory on how you feel about spending and saving, and whether underlying habits are compelling you to get a little careless with your card. Talking to a financial advisor or a trusted counselor could be your best path to smarter spending.
Use Your Cards Strategically
Understanding the larger role that responsible credit card use plays in your financial future can inspire you to stay out of debt. Knowing how to use your credit card while avoiding debt traps empowers you to build a credit score that can open the doors to major life goals, like owning a home or starting a business.
As the team at iTHINK Financial explains it, responsible use isn’t big or flashy – and that is precisely the point. It’s about showing lenders that you have control over your finances. They recommend attaching your card to a small recurring charge like a monthly subscription or utility bill via autopay.
“This creates a steady pattern of on-time payments while keeping your credit utilization ratio low, which benefits your credit score in two major ways: strengthening your payment history and demonstrating responsible credit use.”
More From CardCritics™
