6 simple rules to stay out of credit card debt

Jan 12, 2021

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Many consumers struggle with credit card debt. TPG founder and CEO Brian Kelly even struggled with credit card debt when he was younger. But, it is possible to use credit cards without getting into financial trouble. And, doing so is critical if you’re looking to maximize your travel through points, miles and rewards credit cards.

Whether you’re new to credit cards or getting your finances in order, learning how to use credit cards responsibly is essential. Here are some simple rules that you can follow to stay out of credit card debt.

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In This Post

Treat cards like you would cash

There are many reasons to use a credit card instead of cash. One primary reason is the protections provided by credit cards. Plus, credit cards can also help you build credit and earn rewards.

However, for many consumers, handing more than $100 in cash causes more emotional pain than handing over their credit or debit card. And it can be tempting to use credit cards — especially credit cards with a 0% intro APR — as a tool for deferring payment for something you want now but can’t afford.

But, one of the best ways to stay out of credit card debt is not to make purchases that you wouldn’t — or couldn’t — make using funds in your bank account.

Related: Common credit card mistakes and how to avoid them

Make a budget and stick to it

Woman managing the debt***These documents are our own generic designs. They do not infringe on any copyrighted designs. Photo by Rawpixel/Getty Images
(Photo by Rawpixel/Getty Images)

If you’re looking to stay out of credit card debt, it’s essential to make a budget and stick to it. Creating and using a budget allows you to:

  1. Evaluate and improve your spending habits
  2. Determine how large of an emergency fund you need (more on this in the next section)
  3. Calculate how much income to save
  4. Spend within your means

There are many budgeting techniques that you can use, so select the one that’s the best fit for you. At a high level, you’ll need to decide how to split your income between your needs, wants and savings. You may also need to identify expenses you can reduce or eliminate if there’s not enough income to cover everything.

Related: Staying organized: The best apps for money management

Create an emergency fund

You never know when you may face unexpected expenses. For example, you might incur unanticipated medical bills. Or, you might lose your job and need to rely on savings while looking for work. For these reasons, it’s crucial to have an emergency fund.

An emergency fund is a safety net that you can use to pay for unplanned but necessary expenses that you otherwise can’t afford. Ideally, you’ll build up your emergency fund and never use it. But, having an emergency fund can help you stay out of credit card debt. After all, you can use your emergency fund to cover expenses in a pinch.

Financial planners usually recommend setting aside three to six months’ worth of expenses in your emergency fund. But you may want to keep more or less in your fund, depending on your situation. Of course, if you need to dip into your emergency fund, you should always restock it. And, if your monthly expenses increase, it’s smart to increase your emergency fund accordingly.

Related: 4 ways points and miles can provide a financial safety net

Pay your statement balance in full each month

Image by Hero Images / Getty Images
(Photo by Hero Images/Getty Images)

If you want to avoid credit card debt, you’ll need to pay your statement balance in full each month on or before your due date. Doing so will prevent interest from being charged on your account.

If you don’t have cash flow issues, you may want to set up autopay on each of your credit card accounts so that you don’t have to worry about missing a payment. But, even if you set up autopay on your card accounts, you should still review your transactions each month to catch any fraudulent charges quickly.

If you absolutely can’t pay your balance in full, you should at least pay the minimum balance due by your due date. Doing so will prevent late fees and penalty interest rates, but you’ll accrue interest on the remaining balance. And, you’ll want to pay down your account balance to $0 as soon as you can to get out of credit card debt.

Related: 3 credit card myths one TPG staffer had to unlearn from her childhood

Minimize your expenses

If you incur more expenses than your income can support, you may find yourself in credit card debt. However, by making a budget, you can identify areas where you can reduce or eliminate expenses.

You may be able to save big by reconsidering some of the largest expenses in your budget. For example, you may be able to use public transportation and ride sharing instead of keeping a car. Or, your family may be able to get by with one car instead of two. Likewise, you may be able to move to a smaller home, apartment or condo — or to a less expensive area. By making some difficult decisions, you may be able to reduce your expenses drastically.

Related: 5 personal finance strategies that will help you to travel more this year

Watch for warning signs of credit card debt

Photo by mediaphotos/getty images
(Photo by mediaphotos/Getty Images)

There are some common early indicators when it comes to credit card debt. Specifically, be wary if any of the following apply to you:

  • Struggling to pay your statement balance in full by your due date (especially if this happens for multiple months)
  • Regularly charging up to your credit limit
  • Turning to your emergency fund or savings for daily expenses
  • Not having an emergency fund
  • Not regularly contributing to savings
  • Using cash advances on your credit card when you’re short on cash
  • Repeatedly relying on balance transfers to shuffle debt around

If you find yourself doing some of the above, now is a good time to improve your finances.

Related: 13 expenses that you should not put on your credit card

Bottom line

Using travel rewards credit cards can get you valuable points and miles along with excellent benefits like hotel free night certificates. But to truly get value out of your cards, it’s crucial to prioritize responsible use and follow these six rules to stay out of debt.

Featured photo by Portra/Getty Images.

Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.