Hypothesized in the late 1800s and developed in the early 20th century, credit cards are a form of payment that can result in serious financial problems. While many credit cards come with perks and benefits - such as discounts or cash back deals - using them improperly is one the easiest ways to accumulate overwhelming amounts of debt. With a good understanding of credit cards and a bit of discernment, though, you can use them to your advantage and avoid amassing unrealistic financial obligations.
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In order to avoid credit debt, never pay for something with a credit card that you cannot actually afford. Commonly, consumers think that credit enable them to buy things that they couldn't pay for in cash. Avoid this. If you can't pay off your outstanding bill at the end of each month, you are probably overextending your financial budget. Additionally, make a point to never take cash advances on your credit card. Cash advances accumulate unreasonable interest rates and come with not grace period. This means that you will pay interest on the cash advance even if you pay off the bill at the end of the month.
Make a point to never purchase food with your card. Why? Food is perishable. By the time you receive your bill at the end of the month, the purchase will be gone. Generally speaking, purchasing groceries or other perishable items on your credit is considered poor budgeting. Try not to accumulate interest on items that are disposable, such as groceries or meals. Do not buy special services with your credit card, either. These are usually over-priced and useless. Many credit card companies offer services like life insurance or identity theft protection. You probably don't need to buy them.
Avoiding credit debt isn't just a list of "don'ts." There are a few steps you can take (instead of ones you avoid) to keep your money safe and secure. Firstly, create a budget. Creating a budget doesn't mean that you have to create a list of strict rules regulating your funds. Just know how much you have to spend and where it's going each month. Budgets aren't set in stone - you can adjust your financial plan as your budget and needs change. Be disciplined, but understand that your financial budget is flexible. If you have trouble regulating how much money you spend on your card every month, leave it at home when you go shopping.
As a general rule, credit cards should only be used in emergency situations, not for your everyday spending or regular shopping. Additionally, avoid having more credit cards than you really need. Most people need less than three cards. Finally, one of the best ways to stay out of credit debt is to fully pay off your bill at the end of each month. Be disciplined and avoid spending money on your credit card you don't really have. This way, you can pay it off and maintain a good budget, stay out of debt, and have peace of mind about your financial future.
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