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How to Avoid Falling into Credit Card Debt Trap

How to Avoid Falling into Credit Card Debt Trap

If you own a credit card, then you run the risk of getting trapped in a credit card debt. To avoid yourself from getting into such a situation, here are a few suggestions.
Sailee Kale
Credit card debt problems are continually on the rise, with practically everyone having access to a credit card. People use credit cards so freely nowadays because of the numerous benefits associated with it. One of the main reasons is it reduces the chances of fraud, keeping your finances safer, as compared to the use of check books and debit cards. Some of the other benefits that come with using credit cards is the rewards points programs (for instance, towards airline tickets) you can avail of when making purchases. Most credit cards offer the cash back facility, they give you back 1% of your total purchases in cash. Keeping all these perks in mind, people end up using credit cards more than debit cards. The purchasing power a credit card gives to its user, coupled with the fact that a lot of people do not make the card payment on time, makes them prone to the danger of falling into the debt trap.

Have you ever found yourself in a scenario where you skip the payment of one bill to pay off another, or you realize one of your credit cards has maxed out, and the mere thought of taking a look at your monthly bills is terrifying? These indicate that perhaps you are gradually falling into a debt trap. So follow a few preventive steps today so you can steer clear from getting trapped under any financial obligation.

Guidelines to Avoid a Credit Card Debt Trap
  • Pay your credit card balance on time, and in full every month, and ideally, before the due date has elapsed. Now you need not worry whether you have met the minimum payment requirement, since there is no balance due. If you realize you have insufficient funds, at least make it a point to pay a little more than the minimum payment. Paying off credit card payment in full every month is the best way to avoid credit card debt. Lower the balance, the better your credit score.
  • Read the fine print when you buy a credit card. Know all details about the interest rates being applied, duration of the grace period being offered, and any fees being charged. Avoid applying for a card that charges annual fees. Many people are unaware of the fact that interest rates can be negotiated, so do a thorough research when you apply for a credit card. If you are a student, card companies may even waive off the first year's interest.
  • Whenever you receive the monthly statement, go through it carefully. There are chances companies may increase the rates without due notice and for no apparent reason. Keep yourself updated on interest rates, even if your balance is paid off in full. In case of emergency, you should always keep a fund to fall back on.
  • Avoid taking a cash advance. The catch is the company will charge a higher interest rate and offer no grace period, something which most customers are not aware of.
  • Do not use the credit card at the gas station, supermarkets, movies, and for everyday grocery purchases. In such places, it's advisable to use a debit card or cash. Forming a habit of using credit cards instead of debit cards for small purchases will push you close to a debt. Never use a credit card to purchase things that are not within your budget. The fact is, if you cannot afford the item today, you may not be able to afford it in the near future either.
  • Do not purchase too many credit cards. Limit them to one or two. Having thousands of dollars in credit is very tempting, but using several credit cards implies that you have to remember an equal number of due dates, grace periods, interest rates, and various charges and fees. Managing so many cards is surely tough, and you are more likely to miss out on some payment or the other, and slowly inch your way toward a debt trap.
  • Credit cards are also offered to students who have just entered college. Parents should advise their children on how to manage personal finances. It's a lesson that will prove invaluable to these youngsters. Quite often, such students end up in vast amounts of credit card debt even before they have graduated.
  • You might want to apply for a prepaid credit card, which works just like a credit card, but without finance charges. An advantage here is you cannot go overboard with your expenditures, since you cannot surpass the amount that lies in your account. In such a case, there is very little risk of you falling in a debt trap.
  • When you step out, do not carry your credit card with you. This will prevent you from impulsive shopping, save you money, and help your finances get back on track.
Gaining a wise knowledge of your personal finances and learning how to manage them, and developing a plan that monitors your spending activity is essential so you do not lag behind in your monthly card payments and end up in debt. If you own a credit card, start following these simple steps, so you do not fall victim to credit card debt.