There are several misconceptions linked with credit card debts. However, just like all other financial matters, misconceptions related to credit card debts also need to be clarified. You must be aware of everything regarding credit card debts so that you can efficiently avoid them. Credit card debts can cost you way more than what you must actually pay. Therefore, knowing some tips to avoid credit card debt can come handy.
Here are some tips that you can use to steer clear of credit card debt:
1. Control usage of the credit card
If you can see that there is a bill accumulating on the card and you cannot handle it, you must simply stop the credit card usage. If you continue using the credit card, you will keep adding to the unpaid bill due to which you will get into a deeper debt trap. The monthly rate of interest on a credit card is about 2% to 3%. This might not sound like a big figure, but when you calculate it annually, it can even go up to 40% in a few instances. Under such circumstances, it’s best to control usage of the card and work towards repaying the already accumulated debt. Also, since the rate of interest is so high, make sure that settling the debt is your topmost priority.
2. Do not cancel the credit card
Credit card debts reflect poorly on the credit score. It is essential to make regular payments to improve your credit score. However, in the meantime, you should also make sure that you do not make the mistake of canceling the credit card. A credit card, which has a longer life span, is much more beneficial for your credit score. When you have an active credit card, it means that you have a history of payments to show. However, if you cancel the card, it might indicate that you have not been a disciplined credit card user.
3. Avoid withdrawing cash
To prevent any debt accumulating on your credit card, make sure that you are not making any cash withdrawals using the card. When you make a non-cash transaction on the card, you get a time frame in which you can pay the bill and during this period, no interest will be charged. This period usually ranges between 30 and 50 days. However, this does not apply to cash withdrawals from a credit card. There is no interest-free period on cash withdrawals, and you start getting charged a hefty rate of interest from the first day of withdrawal. So, avoid these transactions to prevent credit card debts.
4. Make complete payments and not just the minimum payment due
Most people think that they are done with the credit card for the month after paying the minimum amount. However, you must be aware that the minimum payment is only 5% of your bill and the remaining 95% still needs to be paid. Also, if you miss out on paying the bill within the interest-free window, you will be attracting a substantial amount of interest on the remaining bill amount. So, start paying the complete bill.
Follow the aforementioned tips to avoid credit debt to ensure that you live without any worries.