How To Use Your Credit Cards without Getting into Debt
With all of the awesome perks credit cards are now offering, it’s become easier than ever to get into debt. So many of us are lured into carrying over balances that accrue interest which sinks us further into debt.
If you’re someone who wants to become debt-free, there are ways for you to break the cycle. Try using something like the debt avalanche method as a way to use your natural motivations to build the discipline necessary for getting out of debt.
Once you are debt-free, you don’t need to throw away your credit cards and lose those great perks if you don’t want to. Here are a few strategies you can use to have the best of both worlds.
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Pay your balance in full every month
Paying interest is just throwing money away on things you’ve already bought. If you don’t pay your balances off every month, you’re just increasing the cost of every purchase you’ve made. Make maintaining a $0 balance non-negotiable with your budget so that you’re never wasting your hard-earned income.
Treat your credit cards as if they were debit cards
People get into credit card debt by treating their credit as an extension of their income. Those who can use credit cards effectively instead see them like a debit card with benefits, which requires you to already have the money to pay for the thing you’re purchasing.
Don’t let yourself be tempted into buying things solely because you’ve got a large line of credit. Treat your credit cards as if they were directly tied into your checking account so that you’re never spending more money than you make.
Don’t get too focused on rewards
Having a credit card that gives you rewards, miles, or cashback can be a double-edged sword. If you were already going to make those purchases, great! If, however, you get lured into buying things because of the rewards you’ll get, then you might be wasting your money.
Think of rewards like “buy one, get another one for a discount” sales. Just because something is on sale doesn’t make it a great deal. If you’re only buying something because it was 40% off, then you’ve just thrown money away. The same goes for rewards and cashback. Yes, the purchase might mean getting perks, but if the price means throwing money away on things you didn’t plan to buy or having to pay interest, is it really worth the cost?
Weigh the cost vs. benefit of your annual fee
Premium credit cards will often charge a yearly fee to keep your account active. This might seem foolish to you if you’re used to $0 annual fees, but many cardholders can see the cost-benefit ratio as a way they can either break even or significantly reduce the fee. Typically, this will be leveraged through benefits the card offers (airport lounges, statement credits, etc.) against how much it would cost if they had to pay for those perks themselves.
Card benefits can be very lucrative ways to maximize your spending, but only if you’re able to use them. Often, these premium cards will have perks tailored to cardholders who travel frequently or are entrepreneurs who spend a lot on their businesses.
If those don’t apply to your situation, you might just be paying the hefty annual fee for vanity without getting the true benefit of what your card offers. If that’s the case, look into downgrading to a card that has a lower fee or one that has no cost whatsoever.
The bottom line
The easiest way to strategize using credit without going into debt is always to spend less than you earn. Use these tips to help you become disciplined with credit so that you’re never stuck in the cycle of debt that prevents you from living your best life.
