The new year is here and many of us have the goal of transforming our finances. Whether that means investing more, spending less, decreasing debt, or something else, getting control over your personal finances is one of the best goals you can set for yourself. For some, the goal might just be to avoid debt and save as much as possible in 2022. What can you do to avoid building up credit card debt? Why do people accumulate debt so easily? How can you stay away from those pitfalls? Find out now.
Set a Budget
Here’s one rule to remember: If you couldn’t buy it without the card, you can’t buy it with the card. Credit card debt develops when you view it as extra money to spend. The fact of the matter is if you don’t have the money in your checking account to buy it, your credit card should make no difference. By never spending cash you don’t have, it will be impossible for you to accrue debt. That’s why it’s important to set a budget. Create a monthly budget that spells out exactly how much you’re going to put into savings, investments, your 401(k), and decide how the rest will be spent on necessities. Don’t just write this down—stick to it.
Only Make On-Time Payments
Always, always, always make on-time payments and pay your bill in full. If you can’t pay your bill in full at the end of the month, you’re not following the previous rule. You have a credit card in order to build your credit, and that’s not going to happen if you’re not using it wisely. You miss one payment, then comes interest, late fees, and next month’s credit card bill. This only makes it easier to put more charges on your credit card. Not paying on time and letting that debt accumulate is what creates a vicious financial cycle. Paying that balance in full means you start at $0 balance every month, the perfect base for sticking to your new budget.
Settle the Holiday Debt Now
December is a joyous time for families and an even better time for credit card companies. Why? Last-minute shoppers are forced into spending a large sum of money at once to get numerous gifts or rush shipping fees. You set a budget for each person on your list without realizing the price it all adds up to. This all equates to a very tempting credit card situation. It’s all too easy to rush from store to store and dump it all on your credit card, spending $20 here and $50 there without realizing the grand total. Without setting a budget or thinking carefully about credit card spending when Christmas shopping, consumers create a very dangerous financial situation for themselves. So how can you handle any credit card debt you might’ve built up during the holiday season? Factor it into your budget. Set a monthly amount you’re going to put towards it and stick to that. Make it one of the first bills you pay in the month. Once the money is spent, it’s spent.
Build an Emergency Fund
When car troubles, home repairs, or medical bills pop up unexpectedly, a credit card might look like your only option. How can you avoid using your credit card for emergency funds? Build your savings. It takes time to build a savings that you might be able to live off of for months at a time, but even a small savings account is better than nothing. Just $500 set aside might be enough to counteract those surprise expenses we all dread. Decide in your budget how much you can put into your savings each month, and get it done as early as you can. Once the money is there, don’t touch it. You’ll thank yourself later.
Get Expert Financial Advice
Personal finances are a tricky path to navigate alone. Chris Haro, CPA and his team have over 20 years of experience in financial planning for individuals. Our financial experts work from two locations in California to offer high-quality services for businesses and individuals alike. Contact us today to get your 2022 finances in order.