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This article was last updated Jan 08, 2019. Terms and conditions may have changed. For the most accurate information, please consult the issuer website.
It’s 2019! In the beginning of the new year, you’ll often hear chatter about new year’s resolutions regarding weight loss and saving money. An impressive financial goal to set this year is to avoid taking on new debt and make 2019 the year you pay off any lingering credit card balances from 2018.
Carrying a card balance month-to-month is never ideal and can cause you to rack up high interest charges, especially with recent Fed rate hikes, making it harder to pay off what you owe. When you carry a balance on a credit card, you’re charged an annual percentage rate (APR) that varies with the prime rate that’s set by the Fed. So, when the Fed raises rates, card issuers typically raise interest rates a quarter percent. Currently, the average APR for a new credit card is 16.91%, and expect that to increase in the new year.
“As interest rates keep rising, it’s only going to get more expensive and take longer to pay off your credit card debt,” said CompareCards.com Chief Industry Analyst Matt Schulz. “Your best move is to take action today. Even if you start small, all those little actions add up over time and can really make a difference.”
If you’re not sure how to start living a debt-free life or simply need tips to keep living without debt, we’ve got you covered with several actions you can follow to be debt-free in 2019.
How to avoid card debt
Create a budget
A common financial tip you’ll hear over and over again is create a budget. If you’ve never budgeted before, 2019 can be the year to start. It’s really not that difficult, and allows you to get a clearer picture of how much money is coming in and how much is going out. Creating a budget doesn’t mean you need to write down every purchase you make or keep large spreadsheets — it can be as simple as downloading a budgeting app and linking bank accounts. Many budgeting apps are free to use and allow you to set spending goals. A budgeting app can help create a holistic look of your finances and help you find ways to cut costs.
Compare budgeting apps on MagnifyMoney.*
Set up an emergency fund
Falling into debt can happen to anyone, no matter how careful you are with your money. An unexpected event may occur, such as an appliance breaking or a medical emergency, that can break even the best budget. That’s where an emergency fund can come in handy. When an issue arises, you could have a nice safety net to help cover expenses. Although an emergency fund may not cover every financial crisis, it can help avert the smaller ones.
A simple way to kickstart an emergency fund is to open a savings account and set up automatic transfer from each paycheck. A helpful tip is to make your emergency fund fairly easy to access since you may need money fast, but remain diligent against dipping into it for non-emergencies.
Pay on-time and in full
Payment history is the most important factor of your credit score, so it’s key to always make on-time payments. In addition to paying on-time, you should also do your best to pay the entire balance each month. This prevents you from incurring interest charges and from creating a ballooning balance that becomes harder to pay off. Autopay is a helpful tool that can ensure on-time payments are made, preventing late fees, penalty APRs, and interest charges.
“There’s no excuse for being late with a payment anymore, thanks to autopay,” Schulz said. “It’s usually easy to set up and it can save you a lot of headaches. Just make sure to set it up to pay more than minimum each month.”
Apply for a 0% balance transfer card
If you’re carrying a balance on a high interest credit card, you can transfer it to a credit card that offers an intro 0% APR period on balance transfers. During the intro period, balances you transfer won’t be charged any interest, allowing the money you pay to go entirely towards your principal owed. Just know, most balance transfer credit cards come with a balance transfer fee that’s typically 3%-5% of the amount you transfer. The fee is often outweighed by the amount you save on interest payments, however, there are credit cards with no balance transfer fee.
Compare the best balance transfer credit cards.
Use a no-annual-fee credit card
A simple way to cut back on pesky credit card fees is to use a no-annual-fee credit card. Some high-end travel cards can carry annual fees as high as $550! Even if you take advantage of all the benefits provided by an annual fee credit card, it doesn’t make sense if you’re struggling to make ends meet. Many no-annual-fee credit cards still have great rewards programs and added perks.
If you currently have a card with an annual fee and no longer want it, before closing your account, call your card issuer and ask to be downgraded to a no-annual-fee card. Many card issuers are willing to work with you, especially if you have a good history with them. Plus, downgrading your card is better for your credit score compared to closing your account.
Limit recurring expenses
Streaming services, automatic online subscriptions, and other monthly expenses are seemingly minor, but can add up fast. Cutting back on recurring expenses can help you save money. You may have several recurring expenses you don’t use or have forgotten about, but are still being automatically charged to your card account each month.
It’s a good idea to review these charges to see if there are any subscriptions you can cancel. For example, a monthly subscription to Hulu or Netflix is at least $7.99 each, and if you subscribe to both you’re incurring $15.98 a month — $191.76 a year — on streaming TV and movies. If you cancel one of those subscriptions, you can save $95.88 a year.
If you made it to the bottom of this guide, congrats! You’re one step closer to avoiding debt in 2019. The next step you should do is take action — download a budgeting app, set up autopay for your credit card bills, and review your recurring expenses. If you have debt from 2018, start chipping away at it now so you can avoid rising interest rates. By taking action on the steps we’ve reviewed, you can be on your way to a financially fit 2019.
*Note: CompareCards.com and MagnifyMoney.com are both owned by LendingTree.