How to Avoid Credit Card Debt

JUN 29, 2011

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During the past few years of recession, you’ve probably heard and read a lot about how unsecured debt (specifically credit card debt) contributed to the country’s economic problems.

The numbers can be downright scary: An Experian poll earlier this year showed that the average consumer owed more than $4,200 in credit card debt by the end of 2010. And a study by Sallie Mae found that college seniors graduate with an average of more than $4,100 in credit card debt.

It could lead you to question why anyone would ever need a credit card in their name, but it’s important to realize that credit cards are not the enemy – credit card debt is, and it’s best to think twice before avoiding credit cards.

In fact, wise use of a credit card can help you improve your credit score. Reliable payment history on a credit card will show up on your credit report – and count in your favor with potential creditors. Plus, there are several ways you can take advantage of credit cards; the trick is just not to let them take advantage of you. Fortunately, having a card and having debt on it do not have to go hand in hand.

The principles of how to avoid credit card debt are actually very simple to understand – but sometimes not so easy to live by:

  • Save credit card use for big-ticket items when the outlay of so much cash at once would make it difficult for you to pay your other bills.
  • Avoid using credit for things that get consumed quickly, like gas and groceries, or for incidentals that you should be able to pay for with cash, like movie tickets or a new pair of shoes.
  • Before you use your credit card to make a purchase, have a plan and a time-frame for paying off the debt. Remember, the longer you carry a balance the more that purchase costs you in interest.
  • Pay on time, every single month until the debt is paid in full. Setting up an automatic payment through your bank or the credit card company is a great way to ensure the bill gets paid on time and you don’t have to worry about it.
  • Don’t automatically cancel a card just because the balance is paid. A card with a zero balance counts in your favor by improving your ratio of credit available to credit used.

The only way to build good credit is to make good use of credit. Smart credit card use is an easy way to improve your credit score.