Above Water – 5 Ways to Avoid Being Caught in the Credit Trap

 

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             Photo by nikko macaspac on Unsplash

Credit is designed to be convenient. It’s so easy to pull out a credit card and pay for that dress you’ve been eyeing or that video game you’re just dying to play. Unfortunately, the convenience of credit cards is precisely what makes them such a problem for many people.

As you charge a little something here and borrow just a little bit there, it won’t be long before you’ve amassed more debt than you can afford to repay. This financial misfortune is called the credit trap, but the good news is there are things you can do to avoid it:

1. Don’t Be Tempted by Payday Loans

When you’re facing a major bill that’s due yesterday, it can be tempting to access the cash you need with a payday loan. Payday loans are a terrible idea because they come with high interest rates (as much as 400%!) and draconian penalties if you can’t pay on time.

Instead, consider payday loan alternatives such as small loans from reputable lenders that carry acceptable terms you can afford.

2. Don’t Use Credit Cards at All

This might seem obvious, but you can’t fall into the credit trap if you don’t use credit. A good rule of thumb is if you can’t afford to buy something with cash, save your money until you can. Don’t begin relying on credit cards for luxury spending or for necessities as they can become a crutch you lean on again and again.

3. Pay More Than the Minimum Payment Each Month

If you must have a credit card (for travel expenses or emergencies, for example) be sure to pay off the balance each month if you can. If you aren’t able to pay off the entire balance, try to pay as much as you can above the minimum amount so you can pay down more of the principal and get out of debt faster.

This method works with just about every form of credit including credit cards, mortgages, small loans, etc. In most cases, there is no penalty for paying a line of credit off early but check the fine print, just in case.

4. Leave Your Credit Cards at Home

You may baulk at cutting up your cards entirely as you want to have a credit card for emergencies. If that’s the case, leave it at home when you go out. Only put it back in your wallet if you go on a long trip or have some other situation where you think you may genuinely need it as a backup. If you don’t have it along every time you go to the store, you won’t be tempted by those impulse purchases.

If you shop online, you can make it harder to make purchases with your card by removing the card’s information from the websites you frequent most. When buying isn’t as simple as a click, you’re more likely to think about what you’re spending.

5. Start Saving

With each paycheck, set aside a small percentage into an emergency fund. Add to this fund every pay period and anytime you receive an unexpected windfall of money. When you have an emergency fund set aside, you’ll be less likely to rely on credit to get you through tough times.

Credit doesn’t have to be a dirty word. After all, some things are difficult, or impossible to buy without it, like a house or car. Use credit responsibly and wisely according to these simple pieces of advice, and you’ll avoid the dreaded credit trap.

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