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A credit card is a brilliant financial instrument to have for up to 50 days of credit-free period and access to exclusive discounts, rewards, and cashback. But, at the end of the day, it is a debt you borrow from a bank or the credit card issuer. Thus, while enjoying the benefits of a credit card is a pleasant experience, you should also be responsible enough to understand that taking on debt involves a ton of complexities. Let’s discuss how you can responsibly use your credit card to avoid falling into a debt trap.
5 Ways to Avoid Credit Card Debt Trap
1. Plan before you apply
Before you apply for a new credit card, plan. Decide why you are applying for a certain card, for cashback deals, interest rates, customer service, or any other factor. Once you have it with you, use it for the purpose you bought it for. This way, your strategy stays on track and your expenditure is always under check. Here you can also check Credit card fees & Credit card vs debit card
2. Set limits based on income
This should be implied before you get a credit card, but make sure you don’t spend more than you earn. Always spend less than what your monthly income is to avoid falling into a certain debt trap. In fact, spend much lower than your income, after accounting for savings, investments, and more. You can set auto limits on several credit cards to get alerts when you are nearing your monthly limit of expenditure.
3. Cut down on expenditure
As a general measure, cut down on unnecessary expenditure. Don’t be swayed by the convenience of a free credit line on the credit card into believing that you can spend lavishly. Be wary of the amount you can spend in a billing cycle and don’t go over it. These simple practices will go a long way in helping you avoid a debt trap.
4. Keep track of bill due dates
Credit card billing cycles run monthly, usually. There is a fixed date when your bills arrive (mostly) and a fixed due date by which you must pay off the amount. While your issuer will share with you a detailed bill statement, it is rare to see them following up on your payment before your due date.
You can make use of certain money management apps that remind you of your bill due dates with frequent alerts, so you don’t have an excuse to skip them.
5. Have an emergency fund in place
Apart from following all of these practices, have an emergency fund in place. While it’s good to have 6-9 months of expenses stored away in liquid assets, it also helps in case you have to take higher debt from your credit card. You can utilize this fund in paying off that debt. But remember, only for emergencies.