Money Matters - Simplified

7 Ways to Shun Credit Card Debt

In an economy which is virtually powered by credit cards, it is impossible not to use the instrument for enhancing your purchasing power. Though it can prove counter productive, there are ways of limiting its ill effects.

For a shopping freak, credit cards might be the invention of the millennium, but this instrument needs to be handled wisely so-as-to reap its benefits for a long time to come.

The Money Times brings you a set of 7 most powerful guidelines that on one hand can help you keep credit score rating high and on the other avoid the risk of accumulating debt, something you know you find difficult to repay:

1. Make Saving a Habit
People are often forced to use their credit cards to cater for their surprise expenses such as a major car repair or payment of hospital bills.

To avoid using your credit card under such dire circumstances, make saving a habit. Better still, make provision for an emergency fund.

2. Buy Only What You Can Afford
The best way to avoid credit card debt is to charge your card only with expenses that you can afford to make.

If you don’t have the cash to go on a Europe tour, there is no point charging your credit card with it and then keep repaying it for the rest of your life.

3. Consider Other Credit Options
While making large purchases like a car or a property, it will be more prudent on your part to get a personal loan rather than charging it on your credit cards, or even worst exercising your credit card advances.

The rate of interest charged on a personal loan is much lower than that charged by an average credit card.

4. Never Give Card Payment Dates a Miss and Pay in Full
Make payments due on your credit cards in time and in full. This is the best way to avoid carrying a credit card balance and not be constantly worried about making the minimum payment.

Remember, even the minimum payment option is a financial trap set by your credit card company.

5. Keep Credit Cards for Emergencies
To avoid getting into a huge debt, save your credit card usage for emergencies only.

Make use of liquid cash and your ATM debit cards for meeting the day to day expenses. This will also guide you towards a healthier lifestyle, where you get used to living within your means.

If possible, keep your credit cards at home while visiting malls.

6. Avoid Too Many Cards
Too many cards translate into too much debt. It leads to confusion and also reflects badly on your credit score.

Have one, at the most two credit cards that you can use sparingly.

7. Keep it Small
The whole aim of floating credit cards into a market is to get you to spend more than what you can actually afford to.

So, the mantra for avoiding debt is to keep your credit limit small.

If you can remember that credit cards are an instrument invented by credit card company to earn huge returns and not for you to enjoy an all- paid-up shopping excursion, you will be able to instinctively limit its usage.

Originally published on 16/08/2010