While a credit card can bail you out in an emergency, you don’t want to end up in debt due to poor usage, as the high interest rates could make it challenging to pay it off.
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According to the latest data from the Federal Reserve Bank of New York, Americans’ total credit card balances reached $1.166 trillion in the third quarter of 2024. This figure is up from the $1.142 trillion balance in the second quarter, and is now the highest balance recorded since tracking started in 1999.
This introductory guide to wise credit card usage is designed so anyone can follow the suggestions. Here are five credit card rules you must follow if you want to stay out of debt:
1. Don’t Charge What You Can’t Afford
The most important credit card rule is to avoid putting purchases on your credit card if you don’t have the funds available. While this may seem simple enough, many people will place large purchases on their credit cards with the expectation they can pay it off eventually. However, with steep interest rates and uncertainty about future income, you could easily get stuck in debt.
“Some of my cards offer extra cash back on categories like gas and groceries,” noted Erika Kullberg, an attorney, money expert and founder of Erika.com. “I use the card, then immediately make a payment from my checking account to pay off the balance since this is just part of my normal budget. This also prevents me from ever accidentally paying late, especially since I have several cards.”
If you want to make certain purchases for the points, you must ensure you have the funds set aside beforehand. Spending money you don’t have to earn credit card rewards you don’t really need is one of many paths to going into debt.
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2. Use for Essential Purchases Only
“Using credit cards for non-essential purchases can quickly result in overwhelming debt,” said Stephen Boatman, principal and financial planner at Flat Fee Financial. “To prevent this, focus on using your credit card for essential expenses like groceries or utility bills, where you can also earn cashback and rewards.”
This strategy aligns your spending with your budget, and minimizes unexpected financial issues when your credit card bill arrives. Boatman added, “By reserving your credit card for important expenses, you can enjoy the convenience and rewards without the stress of high-interest debt.”
This also means you’ll have to fight the urge to use your credit card for random purchases that pop up and high-ticket items that you haven’t saved up for. If you start swiping at every opportunity, you could quickly get yourself into debt.
3. Know the Terms
“To get the maximum rewards, I make sure I’m up to date on interest rates, fees, grace periods and rewards offers,” remarked Kullberg. Before signing up for a credit card, you want to know the terms. Once you use a card, you also want to stay up-to-date with the details. Knowing the terms will help you understand what you’re getting into. You’ll also want to adjust your card usage accordingly if the rewards structure changes.
4. Choose the Right Cards
You have to choose the right type of credit card based on your situation so that you have the correct financial tools. Kullberg elaborated, “Because I know my spending habits, I have the cards that offer the best incentives for using my favorite stores or spending categories.” You want to ensure you have a credit card that makes sense for your situation based on your current spending habits.
5. Pay Off Monthly by Monitoring Balance
Kullberg pointed out how slowly letting credit card balances creep up can quickly get you into debt. She added, “To avoid this, I use an app that has a snapshot of all my account balances in one place, and I monitor it daily. This way, I’m never caught by surprise with a large balance that I can’t pay.”
You can also set alerts, which help make sure you never get behind and flag suspicious activity with your accounts. The goal is to stay on top of your balance so your spending on your credit card doesn’t get out of control.
Due to the convenience and ease-of-spending, it’s easier than ever to get into debt. This is why you’ll want to monitor your balance continuously so you’re not surprised when the bill arrives.
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This article originally appeared on GOBankingRates.com: 5 Credit Card Rules You Must Follow To Stay Out of Debt
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
