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How to Avoid Credit Card Debt
by Amy Cooper-Arnold
We all know the key to good health begins with a dose of prevention—eat right, exercise regularly, and get a good night’s sleep. Your financial health is no different. By taking a few steps of prevention today, tomorrow your finances will have a c

We all know the key to good health begins with a dose of prevention—eat right, exercise regularly, and get a good night’s sleep. Your financial health is no different. By taking a few steps of prevention today, tomorrow your finances will have a clean bill of health freeing you to live a life of opportunity rather than of difficulty.

Keep the Right Perspective

Much of the problem with credit card debt problems comes from changes in credit card availability, advertising, and values over the past 75 years. According to Linda Tucker, Director of Education for Consumer Credit Counseling Service in North Little Rock, Arkansas, it wasn’t until the 1960s that credit cards started becoming available to the average consumer. Now today, nearly everyone has access to a credit card.

Advertising plays a role too. Howard Dvorkin, author of Credit Hell: How to Dig out of Debt and founder of Consolidated Credit Counseling Services, an organization that provides education on debt and a debt management program, says that according to one survey consumers are exposed to 300-400 advertisements every day. Combine this with a shift from saving for the future and we have a society trying to keep up with the Jones’ satisfying the desire of the moment. Add the purchasing power that comes with a credit card and you have the perfect formula for disaster.

But it doesn’t have to be this way. If there’s one thing Dvorkin wants consumers to know, it’s that you don’t have to be a slave to the credit card company or even to the seduction of advertising. You can have control over your financial health without depending on a credit card!

Manage your finances

Starting with a strategy will help keep you on track before you ever even pull out the credit card. According to Tucker the first step is determining your monthly income and needed expenses. As part of these monthly expenses, figure in 5-10% of your income to set aside for emergencies, long range savings such as a retirement account, and short term savings. If you have some savings then you avoid having to put large amounts of debt on a credit card in times of a crisis.

Setting up a budget is not always easy, so if you want some help Consolidated Credit Counseling Services offers free budget counseling. You can also consult your phone book to see if your community has a local office of Consumer Credit Counseling Service.

Setting up a budget is just the first step; sticking to it is the next, and often more difficult task. To help keep you on track set goals and put motivators in place. Tucker suggests setting a savings goal with a deadline. Savings goals can include emergencies, vacations, cars, and of course don’t forget long range goals such as retirement. Tucker also says a reward program can be a great motivator as well. Just keep in mind that whatever you choose as a reward, it shouldn’t compromise the hard work you’ve done in managing your finances.

Finally, you need to monitor how much you charge on your card in relation to your credit limit. You should never charge more than 30-50% of your available limit otherwise your credit score could go down. For more information on credit scores read our article On the Path to a High Credit Score.

Shop for the Right Card

Dvorkin says it’s important to really shop around and get a credit card personalized for your particular situation. Ideally he suggests getting one with no or very low fees and low interest. It will take a little time to compare various offers, but with the high saturation of the market you’ll find the perfect fit for your wallet. Browse the Card Reports section of to shop for every kind of credit card including reward, low-rate, business, and cards for those with poor or no credit.

Read the Fine Print

An afternoon reading the fine print probably doesn’t sound very appealing, but that one hour spent reading can save you hours of headaches and hundreds of dollars in the long run. You’ll understand everything from your interest rate and fees to how to earn rewards and how long of a grace period you have.

Know Your Interest Rate

If you’re going to use a credit card, regardless if you pay the balance in full each month, you need to know the interest rate. This means not only knowing what interest rate you were offered, but also the interest rate the issuer actually gives you on approval. In addition, check the rate on your monthly statements because credit card issuers can raise your rates for little or no apparent reason and with little warning.

Even those who don’t carry a balance need to know their interest rate because emergencies do happen. Unfortunately, cars break down, jobs are lost, deaths happen, and marriages end. While it’s always a good idea to have an emergency fund, sometimes the job search takes longer than expected or the second car breaks down too leaving you with no other choice but to put some expenses on the card. If you’re not up to date on your interest rate, you might end up paying more in interest than you have to.

Pay the Balance in Full

This is important in keeping control of your credit cards. Before using a credit card for a purchase, ask yourself, “Do I have the funds to pay for this?” In cases of emergencies where your emergency fund won’t cover the whole amount you need to charge, experts say at least pay more than the required minimum payment.

Pay on Time

Michael Killian, credit and debt management guide for, says never make a late payment to anyone including car and house payments. Because of the universal default clause in credit cards’ terms and conditions, credit card companies can raise your interest rate if you are late paying any creditor or even your utility company. Read our Universal Default article for more information.

In fact, Killian recommends being very early if at all possible to account for mail time and processing by the credit card company. If you’re payment arrives before the actual due date you will end up saving money on interest because any interest you pay is calculated based on the average daily balance; so if your payment can bring down that average you will pay less interest.

Some people have turned to online bill paying to avoid potential problems with the mail. While Killian doesn’t recommend this form of payment because of the increased risk for fraud by hackers—especially if the company is not reputable or doesn’t offer encryption—it is definitely a better option to a late payment.

Use it Like Cash, Not a Credit Card

In one sense, you need to use your credit card like cash by paying your balance in full each month. But remember it’s really not cash. Imagine the feel of that sleek, plastic card in your hand. It’s so sleek that it slides right out of your wallet with little effort at the check out counter. Each time you pull it out it looks and feels the same. You cannot physically feel your charges climbing higher and higher.

Now imagine a wad of twenties. The first time you pull it out its thickness fills your hand…you feel rich (well, at least you feel like you can afford the purchase your making). :0) But with each purchase the wad gets a little smaller until eventually it’s gone…and now you know you can’t afford any more purchases. Dvorkin calls this the green factor—with cash you can physically feel how much or how little you have.

The point is that you need to be in control of your credit card and spending habits. It’s much easier to be swept away if you use a credit card for all your purchases.

Limit the Plastic in Your Wallet

Every credit card comes with its own set of terms and conditions including varying interest rates, penalties, fees, grace periods and due dates. It is much easier to make payments on time, remember which card has the lowest rate, and save you from making a mistake that will affect your credit history if you only have to keep track of one or two cards.

Avoid Extra Expenses

Sometimes it’s the little extra expenses that sneak up on you before you even know it.

Cash Advances

Typically cash advances come with a much higher interest rate, fees, and no grace period. The moment you take a cash advance you start paying interest on that balance, which means even if you pay the entire balance in full each month you still pay interest.

In addition, credit card companies apply payments to the balances with the lowest interest rate first. So your $200 cash advance will continue earning 20% interest until your $2000 purchase balance is completely paid off.

Extra Products

Credit card companies will try to get you to purchase additional products such as fraud protection and insurance. The truth of the matter is you usually don’t need it. By law you are liable for a maximum of $50 if the victim of fraud, and in most instances you are not liable for any amount. If you are thinking about adding on insurance, first read our article Credit Card Protection Insurance—Should You Get It?

Early Education

The best method for prevention is teaching our youngest generation all about money before they even qualify for a credit card. Statistics show that students are entering college without ever having a personal finance class or knowing how to balance a checkbook. Yet once students arrive on campus credit card issuers are eager to sign them up. College students are racking up the bills. Some even drop out of college to find a job so they can pay their credit card bills. And those who do graduate typically enter adulthood with thousands of dollars in credit card debt and student loans.

In addition, advertisers market more to younger and younger children, so it’s imperative to teach them very early about the lure of money and how to manage finances. The earlier children learn how to manage finances the less likely they will be to fall into credit card and debt problems as an adult.

Fortunately many wonderful resources exist for parents and educators. If you have elementary aged children check out The "It’s a Habit!" Company and introduce your children to Sammy the Rabbit who will teach them all about the importance of saving and developing good money habits. The Jump$tart Coalition for Personal Financial Literacy is another organization dedicated to providing resources for teaching children from Kindergarten on up through college valuable lessons in personal finance.

So there you have it. Some simple steps you can start taking today to avoid the trap of credit card debt and to help others do the same!

Amy L. Cooper-Arnold has been a staff writer for since 2004. Amy's articles have been republished by respected publications throughout the country, including Young Money Magazine, E/The Environmental Magazine and, a top 15 Web property which is owned by the New York Times Co. Amy recently graduated with honors from Austin Peay State University with a degree in English and is currently taking graduate-level classes at Dallas Theological Seminary.

The site is not responsible for any content in it. E-mail: alldir[at]gmx[dot]com
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