Does anyone even use cash anymore? A guide to credit card usage.
Using a credit card to make our purchases has become a very normal thing in our society. Credit cards have made it so simple to make a purchase. All we need to do is simply tap the card on a machine and figure out how to pay for our purchases later. The problem that has been created as a result of the convenience of credit cards is that many of us end up overspending and unable to actually pay the credit card at the end of the month. Many of us have become credit card revolvers meaning we pay what we can on the credit card while continuing to add purchases until we reach that fatal day when our credit card is maxed out. If you are ready to put your credit card revolver days behind you, please read on.
Let’s first talk about what a credit card actually is. A credit card is typically a piece of plastic that is issued by a financial institution and allows you to use a set amount of money to make purchases or pay for a service. In other words, a credit card is a loan that you agree to pay back each month. If the loan is not paid back in full each month, then interest is charged similarly to most other loans.
People will often get themselves into credit card debt for two main reasons. The first reason is that credit card companies allow you to make a minimum payment each month and then they charge interest on the amount you did not pay. This can be very tempting for people as the minimum is often more affordable and can be significantly less than the full balance. The problem with this approach is that the minimum payment may only cover the monthly interest charge and therefore you are never paying back the amount you actually spent. The other reason is that it is very easy to use a credit card. Many people have their credit card handy or even have memorized the number. This makes it very easy to make purchases and those purchases can add up quickly leaving you with a large credit card bill without you even realizing.
So how do we stop the cycle of credit card debt? Here are five ways you can get out of credit card debt and stay out of credit card debt.
- Pay the full balance
This statement is so easy to write and to read but it is SO much harder in practice. If you are already in credit card debt, it may not be possible to pay the full amount owing right now. What you can do is create a plan you can stick with to pay the full balance. I suggest making automatic weekly payments to start chipping away at the total owing. Make sure that you are paying more than the minimum required amount so you can chip away at the whole balance owing.
- Track the spending on your card
Come up with a way to monitor how much you have spent on your card to avoid a surprise bill at the end of the month. This can be as simple as writing down each credit card charge in a note book or linking your card to a budget tracking app like Mint. In both situations it is important for you to be aware of what you have put on your credit card. By totalling all the transactions, you will know how much you are going to owe at the end of the month. Another approach some people use is to pay the credit card off as they go in the month. An example of this would be when you get home from the grocery store, you make a payment to the credit card for the amount of groceries you just bought.
- Use credit cards sparingly
As previously mentioned, it is very easy to use a credit card. To help avoid credit card debt, make sure you are intentional when you use a credit card. Decide to only use your credit card for specific purchases or put the credit card in a difficult spot to get to. Creating your own obstacles to using the credit card can really help avoid extra spending.
- Don’t give into credit card company marketing
Anyone have a great rewards credit card? Credit card companies do a wonderful job at giving rewards for using their cards. Have you ever wondered how much they give away in free rewards? I am here to assure you that they don’t give away more than they earn. Make sure that when you choose to make a purchase on your credit card it is for something you and your family need rather than something that is going to earn you a ton of points. Buying a TV on your credit card and taking a year to pay it off just to get rewards is likely going to cost you more in interest than the rewards were in the first place.
- Monitor your statements
Do you review your monthly credit card statement to ensure that all the charges on your card are your charges? If you aren’t currently doing that, I strongly recommend you start. While credit card companies are good at spotting trends of fraudulent charges, they don’t catch 100% of fraudulent transactions. Take a look through your statement each month to make sure that you are only being asked to pay what you agreed to pay.
Credit cards can be a wonderful tool that can make purchases easier and rewarding. They can also become a huge financial burden that may cause additional financial stress. Being diligent and aware of your credit card usage is important. If you suffer from temptation, a credit card may not be a wonderful tool for you. There is no shame in deciding to not have a credit card to keep yourself financially strong.
