Since most of us aren't rich, we have to get loans to buy a house, a car or complete an education. And because we often rely on financing to accomplish goals, some people have the attitude that debt–regardless of the type–is a normal part of life. Not only do they acquire loans, they also rack up a lot of credit card debt.
In fact, credit card debt in the United States has hit an all-time high at $1 trillion according to the Federal Reserve in 2017. And according to Experian, the average balance on credit cards is $6,354.
Some people continually struggle with credit card debt while others never have an issue with high balances. The differences in debt management often boil down to education and self-control.
To gain control over credit, you must realize that credit card debt can affect your financial health differently than a student loan or a mortgage. Credit cards typically have higher interest rates and fees plus too much credit card debt can lower your credit score. A lower credit score impacts your total cost of borrowing with lower scores getting higher interest rates and less than competitive terms.
Credit cards are financial tools and if they are misused can do a lot of damage. There is an on-going debate among financial experts about credit cards. Some argue to stay away from credit cards and others share how you can use them for financial benefit. You certainly can live without using credit cards or you can learn how to effectively use them.
Again, think of a credit card as a tool like a hammer. You can use the hammer to nail a beautiful family photo onto a wall or you can use it to put a big hole in it. Take these lessons from people who never carry a card balance by learning the do's and don'ts of managing plastic.
Know Your Money
People who don't have credit card debt have a close relationship with their money and they know their personal finances inside and out – primarily because they budget.
Over the years I've spoken with people who truly hate the word “budget.” They feel budgets are too restrictive and take the fun out of life. Rather than adopt their shortsighted view of budgeting, you need to consider the benefits.
A budget is just what you need to keep your money on track and avoid credit card debt. You'll have a clear idea of how much you can spend every month on fixed expenses and variable expenses, such as groceries, shopping, and recreation. A budget is a spending plan that reduces the likelihood of overspending. If you don't have enough cash, you might rely on plastic, which creates debt.
Wait Before Buying
From my observation, people who avoid credit card debt are some of the most patient people you'll ever meet. It doesn't matter if they have their eyes set on a vacation, a new tech gadget, clothes or furniture, they wait until they can afford to pay cash.
They are fully aware of the consequences of frivolous spending. A credit card might provide instant gratification and pleasure now. But it can also cause a lot of unnecessary stress and financial worry for years.
If you want to take a lesson from people without credit card debt, learn self-control and patience. It might take longer to save up and make a purchase, but nothing compares to the gratification of owning an item outright.
Don't Apply for Too Many Offers
The more credit cards in your wallet, the greater the temptation to spend. Most people I've come to know have many cards but don't carry all the cards in their wallet. In fact, they might use a card from time to time to make a small purchase to keep accounts active. But they're also paying off the credit cards in full every month. Also, they don't jeopardize their creditworthiness by applying for in-store credit just to save 10% on a purchase or accept random credit card offers that arrive in the mail.
Don't Use Money to Fill a Void
Some people have a funny relationship with money, and in their minds, money isn't just for protection. It's also a tool for coping with emotions, whether they're sad, depressed or bored. The problem is that most people don't have limitless cash lying around when they need a dose of retail therapy, so plastic becomes their best friend.
People without credit card debt are less likely to use credit cards to fill a void. This doesn't mean they've never had a bad day or that they've never engaged in a little retail therapy. But underneath it all, they know shopping only provides short-term happiness and they're less likely to go overspend.
Have Financial Goals
If you know someone who never carries credit card debt, I'm willing to bet this person is working toward a few financial goals. You may not realize this, but too much credit card debt can put the brakes on buying a house or car. Debt increases your debt-to-income ratio which is a factor lender use to determine your creditworthiness. Additionally, high debt payments can eat at your disposable income taking you away from opportune moments to have fun. If all of your extra cash goes toward paying down credit cards, you might miss out on other things in life.
Proactive in Life
Just because a person doesn't have credit card debt today doesn't mean they didn't have a mountain of debt hanging over their heads years ago. I have been in this situation and can confirm how credit card debt can make one feel reactive.
Credit card debt can be discouraging, and if you owe creditors thousands of dollars, it might feel like you'll never end the cycle, so why try? However, debt isn't going to disappear on its own. And if you want to eliminate your balances, you have to change your mindset and do something about the situation. It isn't always enough to cut up cards and make minimum payments. Sometimes, you have to give up your free time and energy. Get a second job, start a side hustle, sell your belongings, or pay down credit cards with a work bonus or tax refund. It's a sacrifice, but you'll be glad you went the extra mile.
I understand firsthand the trap of credit card debt. You might get your first credit card as a young adult and for the first time, everything's within your reach. But unfortunately, credit card debt can grow quickly, and paying off balances isn't as easy as accumulating debt.
You can avoid a lot of stress by avoiding credit card debt. But if you're currently struggling and carrying a balance from month-to-month, know there's a way out of this situation. Stop using the card, pay more than your minimums, choose a credit card debt repayment strategy, look for ways to generate extra cash and most importantly, stay positive.