How to Use Credit Cards Without Falling into Debt

Using a credit card is much like walking on a tightrope. One of my friend Aakash, had always liked the comfort of his card rewards, cashback, and those very tempting interest-free periods. Swiping it felt effortless, almost too easy. But one month, after splurging on an expensive gadget he didn't really need, Aakash found himself staring at a bill that was way beyond his budget. Unable to pay it in full, he carried the balance into the next month. His credit card wasn't that helpful friend but had grown into a source of stress as each month the interest charges made getting caught up more difficult.

That's the thing about credit cards: they can be so useful but also come with pitfalls if not managed wisely. Aakash's story is not uncommon, but he managed to turn things around with the right habits and got his finances in order. The key was understanding how to use his credit card as a tool rather than letting it dictate his financial choices.

As Aakash learned fairly soon, it's paying the entire balance each month that is important. It's so easy to start paying just that minimum that's due each month because its such an accommodating amount, but only diving deeper into debt by such high interest rates, up to 24% and 42%. Since then, Aakash always tries to pay the entire credit balance every month and consequently keeps his financial life without burdens.

He also learned due date tracking was important. Missed payments had cost him not just late fees but a ding in his credit score as well. Nowadays, he never misses deadlines, thanks to set-up reminders and automation of payments, leaving him with one less thing to bother himself about.

The second error Aakash promised himself never to make again was to withdraw cash on his credit card. That single impulsive act had brought in interest immediately, let alone high fees. He has built an emergency fund since, to handle such eventualities so that during sudden, dire situations, he is not forced to use his card.

He has remained disciplined in using his credit card only for planned expenses, such as groceries or utility bills-things he has the money to pay for. Impulse buys are a thing of the past, unless he knows he can clear the payment in full by the due date.

It also revolutionized his understanding of the concept of an interest-free period. While he pays his balance within a period of 20-50 days, as offered by his card, he now enjoys interest-free purchases while keeping his expenditure under control.

The most valuable lesson Aakash learned was keeping the credit utilization ratio low. He makes it a point to keep his monthly usage below 30% of the credit limit so that he can manage not only his spending but also his credit score.

Another factor in his financial makeover was choosing the right credit card. He changed to a credit card that fitted his lifestyle, providing cashback on daily expenses rather than offering him perks he hardly used. Simplifying his choices helped him manage his finances better and avoid unnecessary complexity.

Nowadays, Aakash regularly goes over his credit card statements. He looks out for anything that might not be his, and he can account for every single one of his spending. That simple practice will mean he won't have any nasty surprises when the bill arrives.

Conclusion

Aakash's story reminds us that credit cards can be a very powerful tool if used correctly. He turned a source of stress into an asset by being disciplined, planning his expenses, and sticking to his financial goals. The question isn't whether credit cards are good or bad's whether you're using them wisely. So, the next time you're tempted to swipe, ask yourself: is this purchase worth the bill?

In the next chapter, we’ll explore strategies to pay off home loans faster and reduce interest payments, helping you achieve financial freedom sooner.