Having a credit card can be a powerful tool, sometimes too powerful.
It can allow you to purchase what you need, today, while putting off the worry of actually paying for it until another day. They can be very helpful, but they can, as many Americans have found, get someone into a lot of financial trouble.
The average U.S. household has $15,355 of credit card debt, according to NerdWallet. This could in large part be a cause of the rapid increase in the cost of living. Meanwhile, the average household income has mildly increased, though not enough to keep up with the price of everyday and household expenses.
The uneven increases in cost of living and income has led to an increase in debt level for many people.
But with a well-thought-out credit card strategy, Americans can reduce their credit card debt. It all comes down to knowing when to use a credit card, and when to leave it behind.
When Your Bill Is Too High
Most credit cards have a spending limit – a maximum amount of money you’re allowed to put on the card.
This can keep you from spending more than you’re able to pay off. It’s not a good idea to spend as much as you’re permitted, though.
According to CreditCards.com, even being within a few hundred dollars of your limit can bring down your credit score.
If you’re nearing your limit, cut yourself off. Pay your credit card bill on time every month until the balance is back to zero. Once this is done, you can begin using it again, but give yourself some rules about how and when to use it, and how to pay it off.
Going forward, keep track of how much you put on the card. U.S. News & World Report explained you should only be using 30% of your available credit or less.
When You’re Used To Paying Cash
Most people have personal rules about how they pay for certain expenses. A TSYS study found that most people use debit cards when making day-to-day purchases and cash for inexpensive items.
Credit cards are reserved for online shopping and personal purchases. If you find yourself changing your payment habits because you can’t afford to use cash or a debit card, you may need to re-evaluate your budget.
Beginning to use your credit card for additional expenses is a clear sign you’re spending more than you can afford.
While it’s easy to make up for the lack of cash on hand with a credit card, you’ll have to address the issue when the credit card bill comes. Leaving a balance on your card to carry over into the next month is OK if it isn’t a frequent habit, but carrying around debt for months on end will have a negative effect on your credit score.
If this is happening, instead of ignoring the problem, get to the root of it.
Determine why you’re spending more and come up with a better plan. If your money is going toward necessary expenses, consider creating a savings account specifically for them. If you’re making more frivolous shopping choices, create a plan to limit these expenses.
When You Don’t Know How You’re Going To Pay It Off
Using a credit card can help build your credit history and your payment history, two important factors of your credit score. But if you don’t have a plan to pay off your balance every month, consider putting it away until you devise one.
Using a credit card essentially means putting off paying for something until a later date. This makes it easy to spend outside of your means.
Create a budget to determine how much you can put on your credit card every month and still be able to pay it off in full at the end of it. This will make your credit card bills much more manageable.
Having a credit card can be a gift and a curse. Having it readily available for when an emergency hits is really nice, but you’ve got to make sure to keep an eye on your balance. Budgeting properly is a major key to success with having a credit card. Hopefully, the tips you’ve read today will get you started on the right path!