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8 Habits for Staying Out of Credit Card Debt

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Debt is a four-letter word – it’s both “good” and “evil.”
Which one of those words it depends entirely on how you use debt. Use it judiciously for the purchases you can afford, and debt can be one of the best financial tools in your toolbox – allowing you to save money, accumulate travel rewards and miles, or to simply snap up a bargain when you find it if you don’t have the cash immediately available.

But use it injudiciously and debt is a weapon of wealth destruction.

And with so much attention these days on using credit cards to collect miles and free travel rewards, it’s easy to slip into bad habits when it comes to debt.
So, let’s look at the habits every credit-card holder should be practicing to stay out of debt.

Rule #1: Less is More

I get it: Airline miles and travel-reward perks are a big deal these days. They are their own form of currency, and lots of us collect them by snapping up new credit cards that offer attractive sign-up bonuses. It makes perfect sense.

That’s been my strategy for years, despite the fact that I have several other cards (mainly older cards I no longer use, but don’t want to cancel because of the impact on my credit score). By limiting the number of cards in your wallet, you limit the possibility of debt.

But, that said, never carry more than two cards in your wallet at any given moment – three if you’re self-employed and you have a business card.

Which two cards you choose to carry depends on how you spend and what you want to achieve in terms of travel rewards or cash back.

Personally, I look for cards that meet my needs as a traveler – whether that’s free travel for me and my family or lounge access and no foreign-transaction fees as a frequent traveler overseas. For you, it might be cash back from groceries or bonus miles from frequent home-improvement expenses. Go through the spending categories of your life and determine where most of your money goes, or where your interests lie (meaning: travel or cash back), and pick your cards accordingly.

For the broadest group of consumers, two of the best cards to consider are:

Why are they making so much sense for most consumers.

With Capital One Venture, you’re picking up 2 miles on every dollar you spend, while the Capital One Savor card gives you 4% cash back on all dining and entertainment, 2% at grocery stores and 1% everywhere.

So, you whip out your Savor Rewards card when you’re paying for dining and entertainment, thereby supercharging the money that goes back into your wallet; and you use Venture Rewards for everything else to rapidly build your mileage balance for free airline tickets.

And if you’re self-employed, then consider the Capital One Spark Miles or Capital One Spark Cash, depending on whether travel miles or cash back is more important to your lifestyle. With Spark Miles, you’re getting 2x miles on every spent; with Spark Cash, you get 2% cash back on every dollar spent.

Rule #2: Only Use Your Credit for Expenses You Know You Can Afford

A credit card is not a magical money machine. And just because you have a $20,000 credit limit does not mean you have $20,000 to spend.

A credit card is an extension of your bank account and your income stream. If neither of those can afford what you desire, then your credit card isn’t the magic wand to buy it.

Rule #3: Never Miss a Credit Card Payment

Missing a credit card payment causes three bad things to happen:

  • You begin to accumulate even more debt since your credit-card company will hit you with late-payment fees and interest payment. So, now you owe even more money and you get nothing for that added expense.
  • Your debt rolls over to the next month, meaning that, along with all your new spending, your accumulated balance is larger. Potentially, that could make repaying your balance ever more challenging.
  • Your credit card company can ding your credit report, which will lower your credit score, which can have the knock-on effect of reducing the credit available to you, or the kinds of credit cards you can apply for in the future.

In short, just don’t miss your credit card payment dates. If you must, do as I have and set a reminder in your smartphone calendar, or, better yet, set up an auto-payment plan.
You can set it up to pay the full balance of your card – though that requires you have enough cash in your account to cover the balance. If that’s potentially an issue, set up your autopay to at least cover the minimum payment.

This will ensure you never miss a payment date and never get hit with a late-payment fee or a knock to your credit score.

Rule #4. Pay Off Your Credit Card Debt in Full Every Month

The other way of saying this is: Don’t carry a balance if you want to stay debt free. Basically, this rule wraps together key aspects of the previous two rules.

By letting your credit card balance roll over from one month to the next, you will owe interest. Plus, if you get into the habit of allowing your balance to roll over, it likely means you are charging more than you can afford to spend … and over time that means your balance risks growing too large to manage.

To stay out of debt you must abide by the rule that paying off debt every month is the key to a debt free life.

Rule #5. Use Tools to Track Spending

An easy way to stay debt free is to keep track of what you’re spending.

Apps such as, Mvelopes, Personal Capital, Spendee and others let you easily track your spending, set goals, set alerts, whatever you need to do to keep yourself stay out of debt.

And because you can instantly see where your money goes, you will know what kind of credit card is best for you, based on your spending priorities.

These expense-tracking apps easy to set up, they link directly into bank accounts and credit cards so that you don’t have to do hardly any of the heavy lifting.
All you have to do is set up the account, set up your budgets and then conscientiously adhere to your goals. Do that, and you will never have to worry about how to get out of credit card debt.

Rule #6. Stick to Your Budget

This goes hand-in-glove with the previous rule.
If you create a budget, stick to your budget. It’s easy to disregard a budget because they feel confining and they imply what you cannot do.

So use a mental trick. Call your budget a “spending plan.” And let it be alive rather than static. What I mean by this is that let your budget match your spending as opposed to forcing your spending into a budget.

Just because your budget says you can spend $X on this and $Y on that, and $Z on something else doesn’t mean that’s the budgetary law of your personal universe. Maybe a friend calls with plans for a long weekend. Just rearrange your budget.

Consciously shuffles your spending – cut back on meals and entertainment that month, for instance, and use that money to fund your quick getaway.

Rule #7. Never Use Cash Advances

Unless you face an extreme financial emergency – seeking a cash advance from a credit card is the financial equivalent of serving as your own lawyer. It’s just not wise.

High-interest rates and fees is a path toward financial distress.

First, you will generally pay a fee, often $5 to $10, or 3% to 5% of the amount advanced, whichever is greater. And then you will be slapped with a near-usurious interest rate, which among all the major credit-card players right now is universally higher than 25% annually.

Rule #8. Understand Your Credit Card Terms – Read the Fine Print

We’ve all heard it: The devil’s in the details. That’s particularly true with credit cards.
So, read the fine print that comes with your card. It tells you all the little ways you might be charged interest and fees and charges that you never expected.

For instance, a lot of consumers snap up a new credit card because of some promotional offer for miles, cash back, 0% interest balance transfers. Yet they don’t pay attention to the fine-print details. Maybe you transfer a large balance for 0% rate that lasts for a year or more.
But then you miss a monthly payment by just a single day because you got busy and forgot, or maybe you were traveling … and suddenly your 0% rate goes away and you’re now staring at annual interest charges of 27% when your next bill arrives.

It’s knowing these little things in your credit card’s fine print that can help you stay out of debt.

The Wrap Up

Credit cards are a brilliant creation. They bring convenience to our financial lives.

But they also bring the very real risk of accumulating so much debt that they can destroy our lives – not just in terms of finance, but in terms of family and, even, career.

The best way to stay out of debt is to stay debt free by managing your credit cards prudently. Do that, and you will never have to Google the phrase, “How to get out of credit card debt.”
Now, go forth and spend wisely.

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