Tips to Beat Poor Credit Habits and Reduce Debt

A Naval Support Activity Mid-South Sailor takes a moment to decide which credit card to useCredit: U.S. Navy photo by Mass Communication Specialist 2nd Class LaTunya Howard / Public Domain

Over the years credit cards have grown to become one of the primary ways to pay for goods and services. To some, carrying cards is a necessity, to others there are many benefits to carrying one or more cards, the biggest one probably being convenience. When you want to make a purchase all you need to do is take out your plastic, swipe it, sign the electronic digital pad if required, and you can walk away with your purchase. Very fast, simple and, above all, convenient.

However, as with most things in life, with every benefit comes some sort of trade-off. And with credit cards, there are a number of drawbacks to consider. One of the primary negative issues associated with credit cards is the debt that can accompany it. According to statistics, in the United States, as of September 2014, the average consumer debt per credit card that carries a balance was $7,743. 1 This is actually down a bit from a few years ago when this figure was $8,220, but still pretty high.

While the recession a few years back hit people hard and probably figures into these statistics, in other cases bad credit card habits are often at the root of the problem. Bad spending habits can range from some budget overspending to flat out not keeping track and, as a result, unexpectedly going into deep debt. In order to avoid falling into either of these categories, it is important to break any bad spending habits. Or if your credit balances have already spiraled out of control, you can change your habits and pull yourself out of the debt trap.

Strategies that can be used to break bad credit spending habits include:

Set a Budget and Track Receipts

With the ease of use credit cards provide, it can be easy to overspend, not being limited to using cash. Many people tend to swipe a card without giving it full thought, especially on impulse buys. In this scenario, the charges can stack up quickly without a person even realizing how much he or she has spent.

Establishing a limited budget and setting up a system to track receipts can provide a goal to meet and also a visual to see where the money is going.

There are a number of ways to do this, including keeping a spreadsheet, adding in the charges as they are made. This way, a running balance can be tracked, needs can be calculated and you can visually see when to cut yourself off from excess spending. Additionally, through budgeting and tracking there are no surprises at the end of the monthly cycle when the bank sends its bill.

Bottom line — watch those receipts and don't spend more than you can realistically afford.

3D Budget Pie Chart
Credit: Stockmonkeys. com on Flickr/CC by 2.0 with Attribution

Keep Minimal Lines of Credit Open

According to statistics provided by MyFico, the average consumer carries nine credit cards. 2 Many may not even know how many they lines of credit they have open, as there are consumers that carry many more cards than nine.

Additionally, it is common for credit card companies to create promotional activities to entice consumers to open additional lines of credit. Creditors will offer rewards such as prizes, gifts or monetary incentives. Avoid these temptations. While the offers may sound good in the short-term, in the long run, consumers who tend to spend and carry multiple cards also tend to raise their balances of money owed to credit companies even higher.  By keeping a minimal line of credit open, you better track credit card debt and limit spending. Maintaining a small number of accounts also prevents compulsive spending, which can lead to maxing out credit limits on a number of different cards.

Bank cardsCredit: Commons-Attribution

Limiting the number of credit cards also prevents the credit score problems associated with too many high balances on lines of credit. Not to mention carrying too many cards also increases the risk of loss or theft. With all the data breaches occurring these days, it's smart to be able to easily keep track of the lines of credit open so quick action can be taken in the event personal information and/or financial data is exposed.

Try to Pay Your Statement in Full

A big mistake many consumers make is carrying balances over from month to month, especially those individuals who pay only the minimum balance. These kinds of bill paying practices will only eventually lead to accumulated interest payments and higher debt, especially if the interest rate is high. For instance, the National Credit Union Administration points out that $1,500 in charges at a19 percent interest rate with minimum payments made (and no new charges or fees added) will take 8 or more years to pay off and result in approximately $889 extra in interest. 3

Play it smart, if you're in credit card debt, work to find ways to make more than the minimum payment if you can't pay it off in full after making the purchases. Sometimes changing other spending habits (not credit related) can help accomplish this goal.

Shift to Cash

One of the best ways to avoid falling into the credit card pitfalls is to switch to cash. While far less convenient, cash is finite, when it runs out, no more money can be spent. By establishing a monthly budget, you'll know exactly what you have and what you can afford to spend. If you need to carry a card (and this is probably a good idea - but just one card), use it only in the event of a true emergency. This way when the bill arrives, there is no surprise at the amount listed on the statement, and the balance won't be out of control from frivolous or unnecessary impulse spending. And remember, don't ever use an ATM to get cash using a credit card, those interests rates are typically much higher than if you were to charge a purchase directly.

Bad credit card habits have had a negative impact on many consumers. Credit cards can definitely be of value when used properly, but bad practices can send an individual spiraling into debt before they've realized what's happening. To avoid these kinds of debt traps, establish good spending and tracking habits and those bad credit card habits can easily be kicked.

[Related reading: How to Get Debt-Free and Live a Debt-Free Lifestyle ]