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What Is The Best Way To Avoid Credit Card Debt
Where I Learned The Best Way to Avoid Credit card Debt
What is the best way to avoid credit card debt? Don't ever get one. However in this day and age that is not really very realistic.
Luckily for me in college I had a teacher who shared a great example for what happens if you just pay the minimum payment on your credit card.
She gave the example of going into a department store and buying a $1000 couch:
If I pay cash for it or with a credit card (that I pay off in full when the bill comes in) the couch will only cost me $1000. However, if I buy the same couch with a credit card and only make just the minimum payment, it will take me over 22 years to pay it off and that same couch will end up costing me $3399.
I remember thinking to myself, I would never go looking to buy a couch for over $3000 and why would I ever want to pay 3 times what something is actually worth?
After getting that lesson that day I have always been sure to pay attention to my credit card uses and choices. I will share the tips and strategies that I use for how to avoid credit card debt.
This book offers some terrific advice that can help you stay out of debt or make a plan to get out of debt. It helps you to figure out how much you actually owe, build a budget that will work, and tells you how to maximize your payments.
Save Money and Have an Emergency Fund
If you are just starting into adult hood stay with your parents and save up as much as you can before you move out. Don't just have enough to pay your first month of rent or you will be in trouble right from the beginning.
Try to make sure that you have enough money to cover at least basic furnishings and about 8 months of rent payments. This will provide you with a buffer in case you lose your job.
If you don't lose your job, you will have money on hand in case an emergency arises. Always try to keep at least that much money in a separate savings account, so it will always be there if you need it.
Charge Only What You Can Afford
After I moved out I wanted to buy a dishwasher because I absolutely hate having to wash dishes by hand. I could have run out and bought one with a credit card right away, I just wouldn't have been able to pay it off right away.
Then I thought about the lesson I learned in college. I didn't want to pay 3 times the price of a dishwasher. So instead I looked at how much it cost and figured out how many hours of working overtime it would take to pay for it.
I didn't buy it first and assume the over time hours would be there. I waited until I had worked all of the overtime shifts that I needed first. Then I charged it to my credit card and used the money that I had made to pay it off in full right away.
Quite a few people that I worked with got into financial trouble by spending first and assuming the overtime work and pay would be there. Unfortunately our industry was cyclical so we would be busy with over time readily available for weeks and then lay offs would happen the next week.
People would go out and buy expensive trucks thinking they could easily make the payments with all the money they were making with the all the overtime. Then the layoffs would hit and then they were struggling to make ends meet.
How To Avoid Credit Card Debt
Choose Your Credit Card Wisely
There are many credit cards available, so be sure to understand the terms of the credit card that you choose.
- Check if there is an annual fee and how much is it.- There are plenty of credit cards available that have no annual fee. Even ones with no annual fees can also can also provide you with cash back or points. So make sure you shop around and get the best deal.
- Try to find one with a low interest rate.- While you should absolutely plan to pay off any that you charge every single month, you want to make if you don't that you are paying the lowest interest possible.
Keep Track Of Your Money
One of the reasons that people end up in debt is that it is easy to overspend when using a credit or debit card. You won't see how much money that you have spent until the bill comes in at the end of the month.
That is why it is a good idea to know how much you should spend each week and only take that amount of money out of the bank. Then use that money to buy everything. Then you will actually see the money going down as you spend it.
This will help to make you more aware of how much you are spending and how quickly you are spending it.
If you think that would be a pain in the butt having to go get money out of the bank all of the time, you are right. That is actually one of the benefits. Since you will be more careful with your money so you don't have to keep going to the bank because you ran out of money.