In 2024, the average American’s credit card debt rose to $6,730, according to Experian. But that doesn’t mean everyone who ended the year with credit card debt started out with it.
A lot of people start off the year with clean slates only to fall into the credit card debt trap. And financial guru Suze Orman wants people to know what a problem that is.
Landing in debt isn’t a given
Orman has been quoted as saying, “In January we start saving money, getting out of credit card debt, funding our retirement accounts, and we’re doing wonderful. Then, every single year like clockwork, starting in November, all of you fall into this trap that says, ‘I have to buy this gift…I can’t show up at this party and not have something for everybody.'”
It’s this attitude, though, that can land you in credit card debt and mess up your financial goals.
But while you may be inclined to resign yourself to credit card debt, it’s not unavoidable. All it takes is the right attitude and approach.
How to steer clear of credit card debt
You might assume that avoiding credit cards is the key to not landing in credit card debt. And sure, that strategy works to a point.
But if you don’t open credit cards, you might end up signing a loan or borrowing money another way. So rather than deny yourself a credit card and the many perks that can come with it, like cash back on your purchases and bonus cash for signing up, a better approach is to take steps to avoid debt, period.
One good way to do that is to follow a budget. It may seem like a restrictive way to live, but steering clear of debt can be freeing in its own right.
And budgeting doesn’t have to mean spending hours each week poring over spreadsheets and adding up every receipt. There are plenty of apps you can sign up for that sync your various accounts so you can track your spending seamlessly.
In addition to following a budget, a good bet is to make a list of upcoming expense and figure out a way to save for each of them.
Going back to Orman’s example, a lot of people end up in debt during the holidays. They feel pressured to buy gifts for every single name on their list, and they feel compelled to go all out on holiday cards, decorations, and parties they can’t afford.
Rather than land in the holiday debt trap, make a budget ahead of the holidays now, while there’s still plenty of time until they arrive. Then, figure out how much money you need to set aside from each paycheck between now and then to get to your goal.
And if you don’t think you’ll manage to save enough from your paychecks, pick up a side hustle. Thankfully, the gig economy is still thriving, and the general economy is still in decent enough shape that you should be able to find a side job with relative ease if you’re willing to work hard.
Of course, it’s not just the holidays you should be saving for. If you want to avoid debt, you’ll need to save for every expense on your radar, whether it’s a wedding (yours or one you’re traveling to attend), a new phone, or a new car.
But if you get into the habit of saving for purchases rather than borrowing for purchases, you can steer clear of debt, avoid spending money on interest, and improve your financial situation on a whole.
Credit cards aren’t the enemy
It’s true that credit card debt can be very costly because credit cards are notorious for charging high interest rates. But that doesn’t mean you need to avoid credit cards altogether.
The right cash back credit card could actually put hundreds of dollars or more in your pocket each year just for buying the things you were already planning to.
If you want to avoid credit card debt, or debt in general, get into the habit of budgeting and savings for things ahead of time. It’s a great way to avoid wasting money on interest so you can instead allocate more money to your long-term financial goals.
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