Simple tips to avoid credit card debt

With credit card offers making up a huge chunk of junk mail, it’s all too easy to say yes to yet another deal that may trigger a downward cycle of debt. It’s a fact – the best way to secure your financial future is to avoid credit card debt.

Used properly, credit cards offer many advantages including convenience, a record of your purchases, protection against fraud, building a positive credit history, and perks including free travel, discounted merchandise and more.  

Used to excess, a credit card is nothing more than a high interest loan rather than a substitute for cash. This is how many consumers get into credit card trouble: As debt builds, they take out yet another card that offers a balance transfer, low monthly payments, no interest for a defined period and other attractive perks. Yet caving into such offers practically ensures debt for years to come as the average annual credit card interest rate is a whopping 16.15 percent. 

Here are tips from financial experts on what to avoid, as well as how to use credit cards wisely. 

What Not to Do

• If you can’t afford it, don’t charge it. If you don’t have the cash on hand for a purchase, you’re living beyond your means. Before you charge, be sure you can pay off the credit card balance when the bill shows up in your mail. Cardholders who usually carry a balance have average debt in excess of $7,500.
• Don’t take cash advances. When you accept a credit card offer of cash in advance, interest begins to build on the day you accept the cash. Even if you pay your bill in full at the end of the month, you’ll pay back the cash you borrowed, plus a high interest rate and a transaction fee. 
• Don’t purchase special services. Credit card companies sometimes offer extra services like credit card fraud protection and life insurance. These are typically overpriced and unnecessary. Just say no. Leave those services to trusted companies. 
• Don’t boost your budget. If you get a raise, a bonus, a tax refund or a cost-of-living pay increase, resist the urge to charge more purchases each month. Instead, put your additional cash into an account that pays interest and save it as part of your emergency fund. 
• Avoid unnecessary fees. Common credit card fees, aside from interest rates, include late payments, returned payments, balance transfers and cash advances. If you’re considering a balance transfer, contact your credit card company to make sure you understand any hidden costs. 

Do This Instead

• Create a budget and pay your balance monthly. Instead of giving into the temptation of maxing out your card by reaching the limit set by the card company, create your own budget based on money you have in the bank. Then monitor your credit card purchases throughout the month and make sure you’ll have enough to cover your credit card bills in full. 
• Pay on time. When you miss a payment deadline, the credit card company can charge late fees as well as raise your interest rate, as specified in the fine print on your credit card contract. Default rates are sometimes twice the standard rate, so pay attention to when your payment is due and send in your money in time. 
• Limit the number of cards. You probably need no more than two major credit cards. Having more makes it difficult to keep track of your monthly transactions and to pay on time. Refuse credit card pitches at retail store counters and toss out the offers that come pouring into your mailbox. 
• Read the fine print. Before you accept a new card, be sure you fully understand the interest rates, late fees and default fees. Credit card companies make huge money off consumers who fail to pay on time, so be aware of the rules before you sign up for a new offer. 
• Carefully consider cards that offer rewards. Many cards offer “no annual fee,” and these are good for most consumer purchases. However, if you travel for vacation, a card that offers airline or hotel points may be a good option; or if you want to get first dibs on concert tickets, you may find helpful cards. Such cards with special benefits may have an annual fee, but the perks you receive may make up for that. If you’re not really interested in the deals those annual fee cards have, shop elsewhere for a card that fits your needs.  
• Pay yourself first. Build an emergency savings fund that could cover a minimum of three to six months of basic expenses if you are faced with a period of unemployment. That way, you’ll not slip into excessive credit card use while you’re looking for a new job. 

If You Already Have Credit Card Debt

• Stop using your cards. Start paying in cash, rather than continuing the cycle of charging and going deeper in debt. Remove credit cards from your wallet and lock them in a safe place at home. For online purchases, use PayPal, linking your account to your bank account or debit card, but not to a credit card. For a convenient way to pay when traveling, use prepaid cards offered by MasterCard, Visa or American Express. 
• Make extra principal payments. When your credit card statement arrives, don’t just pay the minimum. Take extra cash out of your monthly budget to pay down your card following a set schedule. 
• Save for your goals. If you’ve been accustomed to charging major purchases like furniture, appliances or vacations, save up instead. Consider opening a dedicated savings account to cover your wish list and put aside money each month toward your goal. 
• Build your emergency fund. When something like the refrigerator breaks down at home and you must buy a new one immediately, dip into your emergency savings to cover it, rather than resorting to your old habit of charging the purchase.  

There’s nothing scary about credit cards if you learn to limit and manage your cards and control your charging habits. The danger sets in when you actually have to start paying those high interest fees because you got into credit card trouble.