What is the best way to avoid credit card debt choose the best answer?

Americans are carrying a record of $4.2 trillion in credit card debt as of December 2019. That breaks down to an average of $6,194 in credit card debt per household. Carrying too much credit card debt comes with a number of risks—thousands of dollars in interest payments, delayed financial goals, and possible even damage to your credit score.
Credit card debt can be avoided, as long as you maintain spending and payment habits that help you avoid getting yourself in over your head.

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Without access to emergency savings, a credit card may be your only option to save you from a major car repair, medical bill, or other unexpected expense.

While it takes time to build the oft recommended savings large enough to cover six months of living expenses, starting with a small amount like $500 or $1,000 can help you take care of those little expenses that pop up. You can build your emergency fund steadily over time rather than having to rely on debt to rescue you.

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Access to credit can be tempting when you spot items you want to purchase but really can't afford. While you might rationalize that you can easily pay over time, promising your future income is risky. A better habit: save up for things you want rather than putting them on credit and only swipe your credit card for purchases you can afford to repay right away.

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Transferring a balance from a high interest rate credit card to one with a lower interest rate is a smart move to pay off your balance at a lower cost. However, transferring balances to outsmart the credit system, for example to avoid a payment due date, can backfire. Repeatedly transferring balances without paying off a significant portion of the balance can lead to an ever-increasing balance once the balance transfer fee is tacked on.

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Staying on track with your credit card payments is one of the best ways to avoid credit card debt. Once you miss a payment, your next payment due will be much higher since you'll have to make two payments plus pay the late fee. It gets tougher to catch up, puts a strain on your budget, and tempts you to use your credit cards to make ends meet.

The late fee for one missed payment can be up to $29. A second missed payment in a six-month period can incur a fee as high as $40, depending on your credit card. And two missed payments in a row can trigger the higher penalty rate and cause a spike in your monthly finance charges.

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Paying your entire balance each month is the best way to avoid credit card debt. Starting with a zero balance each month completely eliminates the risk of getting into credit card debt. You never have to worry about whether you can meet the minimum payment because your credit card has already been paid in full. To pull this off, you have to be disciplined and only spend as much as you can afford to pay off in a single month.

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Recognize the ​early warning signs of credit card debt allows you to pull back on your current spending habits and replace them with moves that benefit you in the long run. For instance, if you notice your credit card balance is too high to pay in full, it's a sign that you've charged too much. Curbing your spending until you've paid off the balance will prevent you from making your debt worse.

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In a moment of desperation, you might consider taking out a cash advance on your credit card. However, it's one of the most expensive credit card transactions with a transaction fee, higher interest rate, and no grace period for avoiding finance charges. Lack of access to non-debt money sources could signal serious financial trouble.

A cash advance usually is one of the early stages of credit card debt. Work on fixing your budget and create an emergency fund so you don’t have to use a cash advance in an emergency.

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You're ultimately responsible for all the charges made to your credit card and lending your credit card puts control of your credit card balance with someone else. If the go on a spending spree and refuses to pay up, your credit card issuer still holds you accountable for repaying that balance.

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Your credit card agreement spells out everything you need to know about using your credit card—how interest will be applied, the fees you'll be charged and when, and anything that could cause your to go up. Understanding these features of your credit card can help you avoid credit card debt because you understand how using your credit card costs more.

You can review the credit card terms before applying for a credit card. Contact your credit card issuer for a current copy of the terms of any existing credit card.

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The more credit cards you have, the greater the opportunity to get into debt. Even if you have solid self-control, it's better not to tempt yourself with thousands of dollars in available credit. Reducing the number of credit cards in your wallet not only helps you avoid credit card debt, it also makes it easier to manage your monthly bills.

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Article | 3:41 min read

No one tries to get in debt. It's just one of those things that happens without your notice, or may even feel as if it's out of your control.

It's just one of those things that happens without your notice, or may even feel as if it's out of your control.  However, staying out of debt is possible. Follow these strategies to avoid falling into a hole of debt.

1. If you can't afford it without a credit card, don't buy it.   One of the most dangerous approaches to having a credit card is living under the illusion that you can afford things you actually do not have the money to afford. One good rule to live by is if you can't pay for something in cash, then you can't afford it with a card.
2. Have a fallback emergency fund.  Emergency savings are very important for those “just-in-case” situations. Best practice when trying to establish an emergency savings is to have at least 6-month of your salary saved up. This will be something to cover your expenses if you lose your job, have an injury that prevents you from working, or for when you need money for an unexpected, but necessary, cost.
3. Pay off your credit card balances in full. The best way to keep your spending under control is to pay your credit card balance as you go. So if you make a purchase with your credit card, say to earn rewards, send your payment the next day before life gets in the way.
4. Cut-out the wants, focus on the needs.   There's always room in your personal budget to cut out unnecessary spending habits. This could be going to “Taco Tuesday” at your favorite restaurant only once a month, or cutting down on your online shopping. The more you shave away the wants and spend only on the needs the better your finances will be.
5. Everything is better with a budget.   By budgeting out your monthly expenses you can better track where your money is going and where you can afford to spend it. Every month, parcel out how much to put in savings, your 401(k), and how much extra you have left to spend on the necessities. So if the time ever comes where you need to do a major cut down of your expenses you will know exactly what to cut. Handy online tools, like Money Manager, can help you with a budget automate some of the budgeting process for you.
6. Do not use your credit card for cash advances.  If you need to use your credit card in order to have cash on hand, that is a sign that you are abusing your finances. Not only is the APR higher than regular purchases, but you'll likely also be charged a fee.
7. Limit the number of cards you have.  Multiple credit cards mean multiple payments and multiple cases of tacked on interest. This is a setup for the eventual need of debt consolidation if you cannot handle using the cards responsibly. The more charges accumulated on each card means more room to lose track of your spending and payments.
8. Master sheet of expenses.  Be sure to keep track of your expenses in a sheet that you are able to update on a month-to-month basis. That way if you have multiple accounts and cards you can ensure that you make full payments on all of them at the appropriate time. Money Manager can help you get a full picture of your finances - even accounts, credit cards, loans, and investment accounts at multiple financial institutions.    
9. In case of pay increases.  If the occasion arises where you receive a pay increase, live off the lower wage that you had before and store the extra funds in savings. After all, you've managed to make it so far off your previous wage, put the new funds in a place where they will work harder for you.
10. Collect coupons to save cash.   Groceries fall under a category of “must-have” when it comes to your budget. By using coupons to minimize the cash you have to use on those needs it will free up extra money that was inaccessible before. Stashing away the extra money will build you a bigger cushion against debt.

The hardest part in trying to avoid debt is limiting yourself. Spending has become one of the most popular temptations in today's society. Through these strategies you can cut-down on potential debt all the while still having room left in your budget for yourself. 

Get a full picture of your finances with Money Manager. 

The information provided in these articles is intended for informational purposes only. It is not to be construed as the opinion of Central Bancompany, Inc., and/or its subsidiaries and does not imply endorsement or support of any of the mentioned information, products, services, or providers. All information presented is without any representation, guaranty, or warranty regarding the accuracy, relevance, or completeness of the information.