A credit card is an important financial feature that enables its users to transact on-the-go. A credit card offers convenient services and most users will have to use a credit card at some point–to buy a car, purchase a home or finance a college education. However, users of credit card need to understand the risk of credit card debts. Credit card, if not used wisely, can lead to accrued debts; bad credit loans, unpaid credit card balances or debts on revolving credit. Most credit cards offer a high-interest loan to purchase items, but without self-control and financial planning, it can easily lead to a chain of debts. Here are a few tips on how to avoid being trapped in credit card debts.
1. Understand How Credit Card Works
Consumers may be tempted to take credit card offers before understanding fully how credit card works. Credit cards enable consumers to conveniently shop for items and pay later. The plan is to pay off the card monthly with interest-fees. However, accrued non-payments can quickly become debts since the unpaid amount also attract additional interest on the credit card. Before you know it, you could be paying more than the actual costs of the items.
2. Use a Debit Card Instead of a Credit Card
Unlike credit cards which are a loan-making tool, a debit card allows you to link directly to your bank account so you can make cashless purchases, just like you would with a credit card. With a debit card, you can purchase items conveniently with an easy swipe of the card which links back to you bank account. A debit card uses the actual money in your bank account, unlike credit cards which facilitate you with interest rated loans when you make purchases. However, use of debit card also requires self-control and financial planning.
3. Charge Only What You Can Afford
If you have to use a credit card for purchases, then charge the card only for items that you can afford to re-pay. Charging your credit card beyond the assigned credit limit can attracts high-interests which can add-up to debts. Spending beyond the discretionary income (available funds to spend) can negatively affect your expenditure which can eventually lead to debts and bad credit loans.
4. Practice Good spending Habits
Apart from using credit cards on purchases that you only can afford, you also need to practice good spending habits. Keep tract of the expenditures and exactly how much money you spend each month. That way, you will be able to establish a spending pattern and avoid spending beyond the available funds. Always ensure that you have enough money in the bank to pay off the card in full when the bill is due. Also, look for ways to cut costs and avoid late fees or unnecessary loan interest.
5. Have an Emergency Fund
Having an emergency fund can come in handy when paying off bills in emergency situations. It’s not advisable to use a credit card to pay off unplanned expenditures such as emergency car repairs which can lead to bad credit loans, and eventually credit card debts. Financial experts recommend saving an amount equal to three months of your living expenses or more as an emergency fund and use it for unforeseen needs.