After paying off between $12,000 and $15,000 in credit card debt in 2019, Yamiesha Bell, a special education teacher in New York City, hasn’t broken up with her credit cards.
With the goal of buying a car and a house, Bell hoped to preserve his credit history by keeping his cards open and active.
“I needed to maintain my credit in order to get the interest rates I wanted in the future,” she says.
While credit cards aren’t ideal for everyone, they can make your credit journey easier if used responsibly. When reconciling credit cards, you need a personalized no-debt plan. Here are some strategies to consider.
1. Think about your spending habits
Maybe you’ve given up on debt, but history can repeat itself if you don’t unpack the motivations behind it. According to Julia Kramer, financial behavior and leadership consultant at Signature Financial Planning in Pennsylvania, a deleveraging plan that works in the short term may not be viable in the long term if it doesn’t align with your priorities. .
Kramer suggests tracking trades that are a week old or older. Add a plus sign next to purchases you’re ready to repeat and a minus sign next to those you’re not ready to repeat. For mandatory purchases like gas and groceries, add an equals sign.
Note the date, item purchased, amount, and need the purchase met. According to Kramer, those frequent lattes or meals with friends may be more about the personal connection experienced, or something else, as opposed to the gratification provided by the article.
This information is essential for identifying areas of your budget that are negotiable. For example, you may be more inclined to choose budget foods in order to maintain a facial that satisfies an internal need for self-care and connection, Kramer says.
If your spending goes astray through feelings like anxiety or boredom, make a plan for those occasions. This may mean budgeting extra money or using tricks like using a credit card lock feature to avoid spending.
2. Use cash for certain categories
If you want to reduce your expenses in categories such as restaurants or entertainment, for example, put some money aside to stay within your budget. Cash on hand can lead to more conscious spending, according to Kramer.
Create a tracking system that works for you. Setting up spend alerts on a credit card account can notify you if purchases exceed a certain amount. Tracking expenses with a spreadsheet, bullet journal, or budgeting app, for example, can also help with mental accounting.
“I wouldn’t open credit cards if you didn’t have a system to track expenses each month,” Kramer says. “It has to be something that you enjoy and that you know you are going to do.”
For Bell, a cash envelope tracking system helps it manage its expenses in different categories, including paying its credit card bill.
“When you look in a cash envelope and see that you only have $50, it’s very clear that once that money runs out there’s nothing more I can do,” she says.
4. Use credit cards only for planned purchases
Easily switch back to credit cards with small, planned purchases, such as a subscription service payment.
After paying off its debt, Bell only uses credit cards for purchases within the budget, and it pays them off in full each month to avoid interest charges. At first, she left her credit card at home to avoid using it.
5. Have an emergency fund to lean on
An emergency fund of even $500 for a car or home repair can help you avoid credit card debt. Start small and aim, eventually, to cast a wider safety net over time – ideally, three to six months of living expenses stashed in a high-yield savings account.
If you’ve already gotten used to budgeting a certain amount each month to pay creditors, keep it up, but direct the funds to savings instead.
6. Don’t Store Credit Card Information on Websites or Apps
Convenient payment options can sometimes lead to crazy spending. By entering payment information into the forms for every online purchase, you’ll have more time to think about a purchase.
7. Get an accountable partner
A non-judgmental partner or trusted loved one can offer their opinion on a purchase or debt-free plan. A responsible partner can be a sounding board that allows you to listen aloud to your own rationales for financial decisions.
As motivations and priorities change, your debt-free plan should follow. Continue to review credit card statements to identify which needs are being met by purchases and which are most important.
If during this process you continue to have frequent debt problems, consider closing credit card accounts, even though this may negatively impact credit scores.
“A big thing about it is knowing yourself and knowing what your areas of challenge are and finding ways around them,” Bell says. “Five years from now it might look different, but right now it’s what works.”