*Editorial Note: This content is not provided or commissioned by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.
This article was last updated Jan 04, 2019, but some terms and conditions may have changed or are no longer available. For the most accurate and up to date information please consult the terms and conditions found on the issuer website.
If you recently paid off your credit card debt, you’re probably breathing a sigh of relief. You don’t have to worry about monthly payments devouring your available cash, how much interest is eating up your payments, or if your account risks closure due to being maxed out for so long. However, you may be wondering what you should do now that you’re not carrying card debt anymore. While there’s no single way to prevent debt altogether, there are several actionable steps that can help you limit future credit card debt.
“After you’ve paid off your credit card debt, the last thing in the world you’d want would be to get back in debt,” said CompareCards.com Chief Industry Analyst Matt Schulz. “It’s really important to understand how you dug that hole for yourself and take steps to make sure you don’t just go out and immediately dig another one.”
Here are some simple steps you can take to live a financially fit life and avoid falling back into debt. If you’re still struggling to pay off credit card debt, check out our guide on the right way to pay off credit card debt, such as with a balance transfer card, a debt consolidation loan or debt counseling.
Ask how you got into debt in the first place
Before using a credit card again, you should ask yourself some questions that can help you figure out why you got into trouble with your credit cards:
- Did you overspend? It’s easier to overspend with a credit card than cash since you don’t have to physically hand over any money. You may have used your credit card impulsively to purchase items that weren’t necessary. Creating a budget is a great way to take stock of how much money you have available to spend each month and where there’s room to cut costs.
- Was there an unexpected emergency? Maybe you had an unplanned medical procedure or an appliance broke or your car needed repairs. Setting up an emergency fund could have helped avert the need to turn to your credit cards, which we discuss more below.
- Did you miss payments? Missing a few payments and carrying a balance month to month can lead you to incur late fees, high interest charges and even higher penalty APRs — all of which can add to an existing debt load. That’s why it’s important to always pay on time and in full.
Once you take stock of the reasons you got in over your head in debt, you can take steps to prevent it from happening again.
Create a budget
If you’ve never created a budget before, now is a good time to start. Creating a budget gives you a well-rounded look at how much money is coming in and how much is going out and where it’s going. You can use that information to see potential patterns of overspending and where there’s room to make changes, if any.
“You can’t make a meaningful plan to manage your money unless you know exactly how much money is coming in and going out of your household each month,” Schulz said. “Once you know that, you can use that budget to help you stay on track and to help you get back on track if you go off the rails every once in a while. It’s an invaluable tool.”
Budgeting doesn’t have to be a stressful task, since there are many budgeting apps that make it easy. You can link your bank and credit accounts to a budgeting app for a holistic view of your finances. Plus, many budgeting apps are free to use and may provide access to your free credit score, the ability to set savings goals and add receipts. You can compare budgeting apps on MagnifyMoney* to find the one that best fits you needs.
Set up an emergency fund
Creating and regularly contributing to an emergency fund is a great way to offset unexpected expenses that may arise. By regularly setting aside some money, no matter how small, you can create a safety net for high-cost expenses that may occur down the road. To kick start an emergency fund, create a separate savings account and set aside money from each paycheck or set up automatic transfers. Just know, an emergency fund should be fairly easy to access since you may need it fast, but you have to be disciplined enough to not tap it until a true emergency arises.
Pay on-time and in full
Payment history comprises 35% of your credit score, so it’s very important to consistently make on-time payments. In addition, you should only charge what you know you will be able to pay off at the end of the month and then pay your balance in full so you don’t incur interest charges. After all, allowing a balance to grow month to month is how you get into debt.
Cut recurring expenses
With online purchases, subscription and delivery services and even transportation services like Uber being linked to your credit card, it can be hard to keep track of credit card charges. All of these seemingly small monthly expenses can add up fast. To avoid balance creep, you should review recurring expenses to see what you can cancel and what to keep.
For example, if you have subscriptions to Amazon Music and Apple Music, odds are you probably don’t need both. Cutting one of those can save you up to $14.99 a month, which can add up to a potential $179.88 in annual savings. If you manage to cut several recurring expenses, you see how it can quickly add up.
Follow the 72-hour rule
If you find yourself overspending on impulse buys, try the 72-hour rule. The way it works is you wait 72 hours before purchasing items that aren’t essential to day-to-day living. For example, if there’s a new coat you want to purchase or an advertisement for something that catches your eye on social media, wait 72 hours before you buy it. If after those 72 hours you still want to purchase the item, you can check if it fits in your budget. The upside to this rule is that you may not want to purchase the item anymore, or you may have forgotten about it altogether.
Downgrade your credit card
Many rewards credit cards have annual fees, which can be as high as $550. If you fell into debt using one of these cards, it may be a good idea to ask your card issuer to downgrade your account to a no annual fee card. Issuers are usually pretty reasonable, and downgrading a credit card is better for your credit score than closing a card.
*Note: CompareCards.com and MagnifyMoney.com are both owned by LendingTree.