Credit is a necessary evil. It can be a life saver when paying for college tuition, purchasing a car, or owning a home. It can also be a budget killer when using it for things you don’t need. Since available credit is given to consumers in the thousands, it’s tempting to take it. Unfortunately, there’s a cost for using that available credit. If you can find alternatives to taking on credit card debt, you’ll be much better off.
You may not be able to escape borrowing money, but maybe you can escape using credit card debt. I’m sharing 5 alternatives to taking on credit card debt. If you need something, try these alternatives before resorting to credit card use. You may end up saving a lot money by not paying interest.
Why Credit Card Debt is Never a Good Idea
Debt of any kind isn’t a good idea, but it’s not always avoidable. Credit card debt, on the other hand, should be avoided at all costs. Notice that I didn’t say credit card “use”, but credit card “debt”. The distinction is that you can use you credit cards, but pay them in full to avoid carrying a balance. This can be a smart tactic, especially when you are using credit cards for rewards.
The trick is to pay your balance in full each month. If you have to carry a balance month over month, the interest you pay will not be worth the rewards you are getting. These credit card companies know what they’re doing! They are counting on you not paying off your balance each month. They make their money on your interest, which helps fund all those great rewards they offer.
I’ve also been asked if it’s a good idea to carry a balance on your credit card to improve your credit score. It’s not. Carrying a balance (and paying it on time each month) and paying your balance in full each month will both help your credit score. The only difference is that you are paying interest when you carry a balance. That is wasted money. Especially when your score will go up when you pay your balance in full.
5 Alternatives to Taking on Credit Card Debt
#1 Borrow from friends or family
When you need something and don’t have the money for it, instead of swiping your credit card, ask your friends or family for a loan. Come to the table prepared. Let them know exactly what you’ll be needing the money for, when you’ll pay them back, and how much interest you’ll pay them. They may not even ask for interest! This is a great alternative to taking on credit card debt, because you can save on interest and give yourself some time to pay it back. The only catch is to make sure you do pay it back. Money should not ruin your relationships.
#2 Save up for what you need
Let’s say you really want something, but don’t need to have it right this second. The best thing you can do is save for it. Take a peak at your budget to see what can be cut back to help you save more towards the things you really want. We live in a society of instant gratification. That leads to taking on debt when we shouldn’t. Trust me, you’ll appreciate the item so much more when you save for it.
#3 Make a budget adjustment
Similar for adjusting your budget to save more for what you want, when you are actively avoiding credit card debt, you may need to adjust your budget. Your budget should show you what is going out and what is coming in. If you have more going out than coming in, you’re likely using savings or debt. Make changes to your budget to ensure you don’t have to use savings or debt to pay for your normal life expenses. No expense is worth being in debt. Don’t be afraid to cut back where you need to. This will ensure you are avoiding the dreaded credit card debt.
#4 Bring in more money to cover the cost
Since you’ve already looked at your budget, and made necessary adjustments, the next thing you can do is bring in more money to cover the cost of what you want. More money can help you make purchases faster than building up a savings. Take on a part time job if you have to. Whatever you are looking to buy, avoiding credit card debt to purchase it will save you a lot of money over time.
#5 Leverage a secured card
If you want to improve your credit history but don’t want to run the risk of carrying a balance on a high-interest card, consider a secured card. Secured cards are credit cards backed by your own money. You put up the money up front, then you get a credit card for the balance you put up. You can use the card up to the balance you put up. Usually the limit on a secured card isn’t that high. That can be a good thing if you have poor credit habits!
How a Budget Can Help You Avoid Debt
I touched on leveraging a budget to help you save more for items, instead of using credit card debt. Now, I want to dive in to how a budget can truly help you avoid debt. If you aren’t keeping tabs on what you’re earning and spending, you run the risk of not having enough money in your bank account to cover bills and expenses. That usually means you’ll use credit cards to get you by.
When you have a budget, you see exactly how far your income will take you. You need to use that information to keep your spending in check. When you start spending more than you make, you set yourself up for failure. Whether you have credit card debt or not, start using a budget. If you don’t have credit card debt, use your budget to ensure you never need to use credit cards. If you do have credit card debt, use your budget to help you pay those debts off.
I specialize in creating budget plans for clients, with or without debt. Schedule a free consultation with me and let’s come up with a plan to get and keep you debt free!
Related: 5 Costly Credit Card Mistakes
When you have any opportunity to avoid taking on credit card debt, seize it! Credit card debt can result in you wasting so much money. What alternatives to taking on credit card debt have you leveraged in the past? What tips do you have for people trying to manage their credit cards? Leave a comment in the section below to share!