5 tips to use your credit card wisely and steer clear of debt

Whether you’re opening your first card or unlearning risky habits, follow these five tips to use credit responsibly and avoid racking up debt.

Tags: Best practices, Credit, Credit cards, Debt
Published: February 06, 2019

Credit cards can be an important tool in your quest for financial security. You can use your card to spread out major purchases and establish healthy credit. Some credit cards even come with rewards such as cash back on purchases or airline miles. Yet the convenience of credit cards can also make it easy to quickly accumulate debt. 


According to a NerdWallet analysis1, 48% of American households carry credit card debt. For those households, the average amount of credit card debt is a startling $15,561. Credit card debt like this can be overwhelming and prevent you from saving for future financial goals. Luckily, there are things you can do to prevent finding yourself in this situation. Whether you’re opening your first credit card or starting fresh after paying off a large balance, here are some tips to use credit more wisely and avoid credit card debt. 


1. Spend within your means

The best way to avoid credit card debt is to pay your balance in full each month. But how can you make sure that’s an attainable goal? The answer lies in your spending habits. It’s important to understand that your credit card can be a tool to build credit and pay for larger purchases in small increments – it shouldn’t be a way to buy things you can’t afford. This can be a hard lesson to learn, as it’s easy for credit cards to feel like “free money.” But remembering to only put purchases on your card that you’ll be able to pay off is the simplest way to prevent credit card debt.


2. Make monthly payments on time

Another way to prevent credit card debt is to make payments on time, every time. Many banks let you set up automatic payments, so money from your checking account can go directly to your card before it’s due every month. You can also set up personal reminders on your calendar if this isn’t an option. Late payments often result in late fees, which can quickly add to your existing balance and make it harder to keep up with payments. You might also consider making multiple payments a month if it works with your budget. If you're unable to make your monthly payments, reach out to your credit issuers to see what remedies are available to you. 


3. Keep a low utilization ratio

Ideally, you want to pay your balance in full each month, but if that’s not possible, at least try to keep a low utilization ratio. Your utilization ratio is the percent of credit currently in use. Let’s say you have a credit line of $5,000. If you have $2,500 in purchases on your card at a given time, you have a 50 percent utilization ratio. Using a high percentage of your available credit can make it harder and harder to pay off debt. As you accumulate a higher balance, you’ll end up paying more in interest. As a general rule, keep your utilization ratio below 30 percent of your available credit to stay on track and prevent accumulating too much debt.


4. Understand your credit card terms

Knowing the specifics of your credit card agreement can help you avoid unexpected fees and keep track of your payments. Different credit cards will have different interest rates and potential fees. Before you use your card, read through the agreement to understand when you will be charged a fee, how interest will be applied to your account, and when that interest rate will increase. For example, some cards offer 0 percent interest for a specific amount of time, but when that time frame is up, you’ll be charged interest on purchases. Don’t let these factors surprise you or create an unmanageable balance.


5. Don’t open too many accounts in a short period of time

Opening too many credit cards at once can be a slippery slope. Even if you have strong willpower, the option to put thousands of dollars of purchases across multiple cards can be tempting. Plus, it can be harder to keep track of your spending and pay dates. Multiple cards with multiple payment dates could lead to you missing deadlines, being hit with late fees and racking up more debt. Plus, opening too many accounts at once could negatively impact your credit score and you may be denied if you open multiple cards within a few months.


When used wisely, a credit card can help you be financially secure and establish solid credit. Stick to the tips above, and you’ll avoid overwhelming credit card debt and feel more financially secure. 


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12017 American Household Credit Card Debt Study.” NerdWallet. 2017.