Millennial Money: 8 Strategies for Breaking the Credit Card Debt Cycle

When paying off between $12,000 and $15,000 in credit card debt in 2019, Yamisha Bell, a special education teacher in New York, didn’t break ties with her credit card.

With the goal of buying a car and a house, Bell hopes to protect your credit history by keeping your cards open and active.

“I needed to maintain my credit to get the interest rates I wanted in the future,” she says.

Although credit cards aren’t ideal for everyone, they can help you along your credit journey if used responsibly. While reconciling with a credit card, you need a personal debt-free plan. Here are some strategies to consider.

1. Consider Spending Habits

You may have paid off debt, but history can repeat if you don’t uncover the motivations that contributed to it. According to Julia Kramer, a financial behavior and leadership consultant at Signature Financial Planning in Pennsylvania, a debt-to-debt plan that works in the short term may not be sustainable in the long term if it doesn’t align with your priorities. Is. ,

Kramer suggests tracking transactions that are a week or more old. Add a plus sign next to the purchases you want to repeat and a minus sign next to the ones you don’t. For essential purchases like gas and groceries, add an equal sign.

Enter the date, item purchased, amount and purchase requirement. According to Kramer, the frequent latte or dining experience with friends may be more about personal connection, or something else, as opposed to the satisfaction provided by the item.

This information is important for identifying areas in your budget that are negotiable. For example, you may be more inclined to choose budget-friendly foods to keep a face that meets an internal need for self-care and connection, Kramer says.

If your spending deviates from experiencing feelings of anxiety or boredom, make a plan for those occasions. This could mean spending extra money or adopting tricks like using the credit card lock feature to stop spending.

2. Use Cash for Certain Categories

If you want to spend on categories like food or entertainment, for example, set aside physical cash to stay within budget. According to Kramer, money in hand can cost more mindfully.

3. Track Expenses

Build a tracking system that works for you. Setting up expense alerts on a credit card account can notify you if purchases exceed a certain amount. For example, tracking expenses with a spreadsheet, bullet journal or budget app can also help with mental accounting.

“If you don’t have a system in place to track spending every month, I wouldn’t open a credit card,” Kramer says. “It should be something that appeals to you that you know you’re going to do.”

For Bell, a cash envelope tracking system helps him manage spending across various categories, including his credit card bill payments.

“When you look into a cash envelope and you see you only have $50, it’s pretty clear that once that money runs out I can’t do much more,” she says.

4. Use credit card only for planned purchases

Ease the way back to credit cards with small planned purchases like a subscription service payment.

After paying off debt, Bell uses credit cards only for in-budget purchases, and she pays them in full each month to avoid interest charges. Initially, he left his credit card at home to avoid being dependent on it.

5. Keep an Emergency Fund to Come Back

A $500 emergency fund for a car or home repair can also keep debt off your credit card. Start small and eventually aim to build a wider safety net over time — ideally, three to six months’ worth of living expenses in a high-yield savings account.

If you previously used to budget a certain amount each month to pay off creditors, continue that momentum, but instead direct money toward savings.

6. Do not store credit card information on websites or apps

Convenient payment options can sometimes lead to thoughtless spending. By entering payment information on the form for each online purchase, you’ll have more time to think about the purchase.

7. Get an Accountability Partner

A nonjudgmental partner or trusted loved one can offer input on a purchase or plan to stay out of debt. An accountability partner can be an empowered board that lets you voice your own justification for financial decisions out loud.

8. Update Your Strategy

As motivations and priorities change, your debt-free plan should follow. Continue to review credit card statements to identify the needs that are being met by the purchase and which are most important.

If you continue to struggle with debt in the process, consider closing credit card accounts, even though it could negatively affect your credit score.

“The great thing about this is knowing yourself and knowing what your challenge areas are and finding ways to work around them,” Bell says. “Five years from now it may look different, but for now it works.”


This article was provided by personal finance website NerdWallet to the Associated Press. Melissa Lamberena is a writer at NerdWallet. Email: Twitter: @lisalambarena.

Related Links:

NerdWallet: How to use a credit card to manage your budget

CFPB: Will Closing a Credit Card Already Raise My Credit Score?

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