How to use your credit card wisely

Summary

• Having a credit card can help you build credit and earn rewards but could lead to debt if it’s not managed carefully.
• Paying your credit card bill on time helps you avoid late fees and interest charges.
• Applying for too many credit cards at once could potentially hurt your credit score.

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 everyday spending or airline miles that make them even more appealing to use. However, the convenience of having a credit card could make it easy to accumulate debt quickly if not managed responsibly.

The average U.S. household owed a total of $20,221 in credit card debt in 2023.¹ Credit card debt like this can be overwhelming and prevent you from saving for future financial goals, like buying a home or a new car.

 

7 credit card tips to help you avoid debt

Managing your credit cards responsibly could positively impact your finances, but without a plan, it’s easy to accumulate debt. These seven tips can help you stay on track and reduce the risk of an overwhelming credit card balance.

1. Spend within your means

Make sure you’re only spending within your means so you can comfortably pay the balance off each month.
Your credit card is a tool to help you build credit and pay for larger purchases in small increments. You shouldn’t use your card to buy things you can’t afford to pay off within your billing cycle.

Stick to making purchases you can easily pay off, like filling your gas tank or paying for your monthly subscriptions to prevent taking on credit card debt.

2. Know how to read your credit card statement

Swiping your card is the easy part, but understanding your statement is the key to staying on top of your finances and out of debt.

Your credit card statement isn’t just a bill — it’s a snapshot of your spending habits and what’s expected from you. Most statements will vary among creditors, but here’s what you’ll typically find:

• Transaction details:  A list of everything you’ve charged to your card during the billing cycle.
• Total balance: The full amount you owe, including interest or additional fees.
• Minimum payment due: The smallest amount you can pay to avoid late fees.
• Payment due date: The deadline to make your payment and avoid late charges.
• Statement closing date: The end of the billing cycle, which determines when new purchases will appear.

Make sure to read your card statement carefully each month to adjust your spending and spot any unusual charges to your account.

3. Make monthly payments on time

Make sure you’re paying your balance on time and in full. Many banks let you set up automatic payments for your credit card bill.

Making a late credit card payment could lead to extra fees and interest that may increase your existing balance and make it harder to keep up with future payments.²

4. Pay more than the minimum each month

The best way to avoid credit card debt is to pay your balance in full each month. If paying the entire balance on your credit card bill feels out of reach, try to pay more than the minimum when your budget allows.

You can also consider smaller, more frequent payments throughout the month to help you stay on top of payments.

5. Keep your credit utilization ratio low

Ideally, you want to pay your balance in full each month, but if that’s not possible, try to keep a low credit utilization ratio. Your credit utilization ratio is the percentage of your current credit card balance compared to your total available credit.³ 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 to pay off debt and could lower your credit score over time. Plus, you may end up paying more interest in the long run. Generally, you should keep your utilization ratio below 30 percent of your available credit.⁴

6. Understand your credit card terms

Choosing a credit card that fits your spending habits and financial goals is important. Different cards will have different interest rates and potential fees. So, knowing the specifics of your credit card agreement can help you avoid unexpected fees and keep track of your payments.

Some of the more common credit card fees to be aware of are:

• Late payment fees: A charge for missing your due date.
• Foreign transaction fees: A fee for using your card in another country.
• Cash advance fees: A fee for withdrawing cash with your credit card.
• Balance transfer fees: A fee for moving debt to another credit card.

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.

7. Don’t open too many accounts in a short period of time

There are lots of credit cards with attractive terms, rewards, and features. For example, a credit card might offer a long-term 0% annual percentage rate (APR) to help you better manage your balance.

Opening too many lines of credit at once can easily lead to accumulating debt. So, it’s important to choose a card that fits your specific needs.

Having multiple credit cards can also make tracking your spending and due dates more challenging. Applying too much credit at once could trigger a hard credit pull each time, which lowers your credit score.⁵ This can also reflect to lenders that you may be in financial distress or heavily depend on credit.⁶

Smart credit habits start here

Using these credit card tips, along with other healthy financial habits, could help you avoid falling into overwhelming debt. Remember, knowing how to use your credit card wisely is just one step toward improving your credit score and gaining more control over your financial goals.

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