How To Avoid The Credit Card Trap

Bunty Sharma Credit Card Advisor

Credit cards are designed for convenience—a quality that is both an advantage and a threat to your finances. It's simple to pull out your credit card and pay for a dinner out, the new purse that you have been eyeing, or the video game that you have been dying to own.

Before you realize it, you owe hundreds of dollars on your credit card that you can't easily repay. In this regard, a credit card is akin to a trap that is set up before you to lure you into debt.

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If you want to learn how to avoid the debt trap of credit cards, you must fundamentally change your approach to using credit cards.

• Create a Budget to Avoid the Debt Trap

Without imposing spending limits on yourself, you can buy indiscriminately and never know that there is a debt trap set up for you.

• Avoid Credit Cards Completely

If you are over-reliant on credit cards, identify the reasons why you need them. If your budget reveals that you're only overspending by a little, try switching a portion of your spending from credit cards to cash or debit cards to cover your expenses.

• Limit the Number of Cards You Have

The idea of shaving an extra few percentage points off of each purchase with a store credit card can be appealing, but it is a lot easier to fall into the trap of credit card debt if you are juggling multiple credit cards.

• Do Not Carry Your Credit Cards on You

You may decide that you only want to use a credit card for emergencies or when traveling. If this is the case, don't carry the credit card with you.

• Pay off the Balance in Full Each Month

If you use the credit card to earn reward points, and you want to use it for the rewards, pay off the balance in full each month within the grace period listed on your credit card statement.

• Keep Balances Low to Avoid the Trap of Credit Cards

If you can't pay off the balance in full, pay off as much as possible and keep the remaining balance low to avoid accumulating debt. Ideally, keep your total credit card debt as a percentage of your total available credit—known as your credit utilization ratio—under 30%.

• Set Up An Emergency Fund

Start by saving up between up to one month’s expenses; once you are out of debt, build an emergency fund, that will cover three to six months of living expenses