How to use credit cards wisely to avoid debt

Whether you’re applying for your first credit card or working toward better spending habits, these five tips can help you avoid debt and use your credit responsibly.

Credit cards can be a helpful tool for major purchases and building a healthy credit score. Many credit cards also come with rewards such as cash back on purchases or airline miles that make them even more appealing to use. However, the convenience of credit cards can make it easy to accumulate debt quickly.

In 2023, the average U.S. household with credit card debt owed a total of $20,221. Credit card debt like this can be overwhelming and prevent you from saving for future financial goals. Luckily, there are plenty of steps you can take to avoid accumulating large amounts of debt.

Credit card tip: Spend within your means

The best way to avoid credit card debt is to pay your balance in full each month. In order to reach this goal, make sure you’re only spending within your means. Your credit card is a tool to build credit and pay for larger purchases in small increments, and you shouldn’t use it as a way to buy things you can’t afford to pay off within your billing cycle. Only putting purchases on your card that you’ll be able to pay off is the simplest way to prevent credit card debt.

Credit card tip: Make monthly payments on time

Along with paying your balance in full, make sure you’re paying your balance on time. Many banks let you set up automatic payments, so money from your checking account can go directly to your card before it’s due every month with the U.S. Bank mobile app. Making your payments late can lead to fees that increase your existing balance, and eventually make it harder to keep up with regular payments. Consider making multiple payments a month if it works with your budget.

Credit card tip: Keep a low utilization ratio

Ideally, you want to pay your balance in full each month, but if that’s not possible, try to keep a low utilization ratio. Your utilization ratio is the percentage of credit currently in use. Let’s say you have a credit line of $5,000. If you have $2,500 in purchases on your card at a given time, you have a 50 percent utilization ratio. Using a high percentage of your available credit can make it harder and harder to pay off debt and can lower your credit score over time. Plus, you’ll end up paying more interest in the long run. As a general rule, keep your utilization ratio below 30 percent of your available credit.

Credit card tip: Understand your credit card terms

Knowing the specifics of your credit card agreement can help you avoid unexpected fees and keep track of your payments. Different credit cards will have different interest rates and potential fees. Before you use your card, read through the agreement to understand when you will be charged a fee, how interest will be applied to your account, and when that interest rate will increase. Choose a card that fits your spending habits and financial goals.

Credit card tip: Don’t open too many accounts in a short period of time

There are lots of credit cards with attractive terms and features but opening too many lines of credit at once gives you more places to accumulate debt. More credit cards to keep track of also makes it difficult to keep track of your spending and pay dates. Plus, opening too many accounts at once could negatively impact your credit score and you may be denied if you open multiple cards within a few months.

When used wisely, a credit card can help you be financially secure and establish solid credit. Stick to this guidance, and you’ll avoid overwhelming credit card debt and feel more financially secure.

Looking for a credit card that meets all your needs? Make an appointment with one of our bankers to explore your options.