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There’s no doubt that credit cards can make our lives easier — but only if we use them wisely. Unfortunately, the simplicity of credit cards has the side effect of also making the potential for overspending a lot easier.
According to data from the Consumer Financial Protection Bureau, in 2022, people around the country carried consumer credit card debt to the tune of $1 trillion. On the individual level, the average amount of debt cardholders maintained was $5,288, which was a 24% increase from the year before. This may not sound like a lot, but it’s easy to see how credit card debt can derail our financial goals if we’re not careful.
Luckily, we don’t have to let credit card spending get to that point. There are habits anyone can adopt that can help them use their credit cards in the most beneficial ways — allowing them to improve their finances and reach their goals. Let’s take a look at some of these habits, which were suggested by financial experts.
Eliminate revolving debt
Have you been trying to tackle your credit card balances, but feel like you haven’t been getting anywhere? Two similar habits that can help you improve your finances are the snowball and avalanche techniques — both of which are not only beneficial financially, but also can help you mentally handle your debt.
With the snowball method, you pay off your credit cards one by one starting with the card that has the lowest balance and working your way up. On the other hand, the avalanche method is where you tackle the credit card with the highest interest rate first, and work your way down until you’ve paid off the card with the lowest rate.
To get the best results, Sharon Lechter, author of “Think and Grow Rich for Women,” suggests that people use a combination of these two methods, since they both have financial and psychological benefits.
“Let’s tackle the smallest debt you have and pay that off. That’s going to build your self-confidence, and you’re going to feel like you’ve accomplished something,” says Lechter. “Then attack the highest interest rate card because at the end of the day, you’re paying much more than you should over time.”
No matter which strategy you choose, Lechter advises that you keep credit card accounts open after you’ve paid them off. That may sound counterintuitive, but keeping the accounts open, even if you’re not going to use them, can positively affect your credit score since it keeps your credit utilization rate — the amount of credit you’re using versus the amount of available credit you have — low. Also, if you’re going to continue using certain cards, be sure to keep this rate lower than 30%.
“If you have a $10,000 credit limit at a store, you want to make sure that the outstanding balance gets under $3,000 because that’s going to have an immediate positive impact on your credit score,” she explains. “The credit utilization rate is something a lot of people don’t understand and it hurts them. The credit utilization rate needs to be under 30%, but as people start moving forward, they should get down to 10% because that’s even better for their credit score.”
➤ LEARN MORE:How to eliminate credit card debt
Leverage available data
While some consumers may only review their spending when their credit card bills arrive, this habit may not help much in improving their finances. Companies may provide a wealth of data you can use in real-time, which can allow you to keep an eye on your spending, as well as the spending of your family members.
To get the most out of this data, Randy Piatt, vice president of Product Solutions and Partnerships for Fiserv, a payments and financial services technology company, suggests creating alerts for your credit cards so you can get information on every single transaction right away.
“This is really just being aware of what’s going on with your card. Overwhelmingly, consumers are saying, ‘Just tell me about every transaction on the card. Every time something hits my card, I want to know about it because then I can react more quickly,'” says Piatt. “And because we all have these phones that we’re never more than three feet away from, it gives us the opportunity to always know what’s going on. You don’t have to wait until the end of the month when a transaction statement comes in; you can see it as it happens.”
Although dealing with all of this information may sound like a tall order, Piatt says most people are much more savvy about credit cards than they may even realize, so consumers can really use that data to deepen their understanding of their spending, and make immediate changes that can help them reach their financial goals.
In addition, Piatt says that setting up spending alerts can go a long way toward mitigating fraudulent activity as soon as possible.
“The average U.S. consumer will let a number of transactions go through before they realize there’s fraud on their card,” he says. “With a robust alert capability, it’s much more likely that they’re going to catch something much more quickly, so when they call to dispute something, instead of disputing two, three, or four transactions, maybe they’re only disputing one or two because a rich alert told them and they’re able to understand that stuff much more holistically.”
Diffuse the emotional part of credit card spending
Credit card spending isn’t always just about the money; oftentimes there is an emotional component that can cause us to spend much more than we want to. Lechter noticed this with her own spending when she found herself giving away a lot of clothes — many of which still had the tags on them — after cleaning her closet. As a result, Lechter adopted what she calls the two-minute rule, which helps to take the emotions out of credit card use.
“If I go in for a blouse and I see three others, I walk away with them for two minutes. It gets over the emotions, because people are very emotional around money. So you may see something you like and buy it, but then regret it. So take two minutes, walk away, and most of the time you’re not going to buy the extra things. I tell people that high emotion is low intelligence, and when you’re emotionally charged about money, you tend to spend it.”
➤ LEARN MORE:How “doom spending” can accelerate credit card debt
