I consider myself a financially savvy person. I live within my means, saving money is a priority, and I purchase most items with cash. But it wasn’t always this way.
Thinking back to my early 20s, I made my fair share of money mistakes. I didn’t learn about personal finance in school, and although my parents did an okay job teaching me the basics of money management, I didn’t receive a lot of credit education. Therefore, I learned about credit and debt the hard way. I maxed out my first credit card within six months and it took nearly two years to pay off the balance.
Many young adults make similar mistakes. A credit card is often seen as a rite of passage into adulthood, and there’s something empowering about having this plastic card in our wallets. We need credit to build credit—that’s simply the way it works. But this doesn’t mean you should go crazy and get in over your head, especially if you don’t want to spend your 30s undoing the damage.
Fortunately, I came to my senses early on and began making smarter choices. The good news is that you can avoid these mistakes altogether. Here’s a look at simple ways to avoid credit card debt at an early age.
1. Skip the “Yolo” Attitude
I get it. We only live once—and yes, our youth is over before we know it. If you’re single, childless and have all the time in the world, it’s understandable that you want to enjoy this freedom and live it up. But this shouldn’t be at the expense of your bank account. There’s nothing wrong with having a good time with friends, experiencing new things and traveling before you settle down—just make sure it’s within your means and you’re not financing your lifestyle. Prepare a budget every month or week, and stick with you. You might only live once, but debt can follow you to the grave.
2. Stick with One Credit Card
The more credit cards in your wallet, the more opportunities to get into debt. You don’t need every major credit card, nor do you need a retail credit card for all your favorite stores, so avoid advertising gimmicks and offers to apply for in-store credit at checkout. One credit card is much easier to manage than five accounts. You’re less likely to overlook a statement or forget a payment, which can result in late fees and a damaged credit score.
3. Don’t Give In to Financial Peer Pressure
It’s important that you know when, and when “not” to carry a credit card in your wallet. If you’re headed out of town for the weekend, bringing an emergency credit card can provide added peace of mind. But if you’re headed to the mall with friends, bringing a credit card is asking for trouble.
It might be easier to stick with a budget when you’re spending cash. Even if you have no intentions of shopping, there’s greater temptation to spend impulsively with plastic in your wallet. And it doesn’t help when your friends egg you on. It can be hard to resist financial peer pressure, so don’t put yourself in a position where you’re tempted to spend money you don’t have.
4. Build a Cash Reserve
If you’re a twenty-something college student or recent grad, you probably haven’t reached the point of having a six-month emergency fund. However, any emergency fund is better than none. Even if you only have $500 in the account, an emergency fund provides cash for a car repair and other surprise expenses. Without any type of reserve, you might be forced to use a credit card. If unable to pay off the balance right away, you’ll pay interest month after month, and it only takes one back-to-back emergency to put you deeper in the hole.
If used responsibly, credit cards are a useful tool for building a credit history. The trick is knowing the right way to manage your account. Only charge what you can afford and pay off balances in full every month. Too much credit card debt can damage your credit score. If you carry a balance, make sure the balance never exceeds 30% of your credit line.
What are your best tips for avoiding credit card debt?