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5 Lessons to Help You Avoid Credit Card Debt

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Credit cards are convenient, and easy to use. They make paying for purchases easy. And they often come with rewards programs, so there's the allure of free stuff. With the right approach, your credit card can be a financial tool that improves your overall money picture.

But you do have to watch out for debt. If you aren't careful, credit cards can also take control of your life, bringing you down and resulting in high-interest debt that can destroy your future financial security. It can happen faster than you think. If you are already in a hole and want tips on how to pay off credit cards, check out this post.

For those who don't yet have credit card debt, here are 5 lessons to help you avoid that fate, while using credit cards to your best advantage:

1. Get a Handle on Your Cash Flow

First of all, it's important to learn about cash flow, and the importance of understanding how money moves through your personal economy. One of the reasons that many people end up with credit card debt is the fact that they don't know how much they have coming in, and where it's going.

Learn about what you have coming in, and where it's going. Once you know what's happening with your finances, it's easier to plan around your paydays, obligations, and prioritize your expenses so the most important items are taken care of first.

2. Have a Plan for Your Money

When you don't have a plan for your money, it's easy to just spend on whatever comes in your way – even if you don't need or want it. Creating a plan for your money can help you keep a lid on your credit card spending, since you can incorporate your credit card spending into your plan. Whether you call it a budget, or whether it's simply a list of things (like retirement account contributions and charitable donations) that you want to cover each month, you need to have a plan for your money.

3. Track Your Spending

After you have identified the overall trends in your finances, and you have made a plan for your money, you need to make sure you track your spending. This includes credit card spending. You know that you need to track your checking account spending, since you don't want to overdraw your account. However, studies indicate that consumers are more likely to spend more – and not keep track of it – when they use credit cards. If you want to avoid credit card debt, you need to track your spending on credit cards, and make sure that it is in line with your plan.

4. Look at Your Finances Holistically

Humans tend to focus narrowly, and this can be a problem when it comes to the wider financial picture. Too often, credit card spending and bill paying are seen as immediate items to take care of, but they are not connected to the long-term big financial picture. This needs to stop. You need to look at all of your financial accounts as part of the whole. Fold your credit card spending into your regular financial picture. This way, you can use your credit cards to spend on everyday things that fit into your spending plan, and pay off everything at the end of the month. Make credit cards part of your plan, and not what you use for "extra" spending. There should be no "extra" spending.

5. If You Can't Pay For It, Don't Buy It

With a few notable exceptions (home, car, business, and education), most things can be paid for upfront, without borrowing. It might mean that you set up a short-term savings goal for big ticket items like TVs, computers, and vacations, but you should adopt an attitude of not buying what you can't pay for. You can use a credit card, but you should make it a rule not to use your credit card to purchase something unless you already have the money in your checking or savings account so that you can pay of the credit card immediately.

Miranda Marquit is a professional freelance writer who specializes in personal finance topics. She enjoys writing about saving money and paying off debt at the ReadyForZero blog and also writes for her own blog. She lives near Salt Lake City. You can follow @ReadyForZero and @MMarquit on Twitter.

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