Credit cards are great for building credit, tracking your spending and earning rewards, but they’re not the best payment method for everyone. Depending on your income and your spending habits, you might be better off reaching for a debit card or even for cash instead of a credit card. Otherwise, you could be sabotaging your efforts to control or reduce your debt.
Here are five times when you should put your credit cards aside.
1. When you just make minimum payments
It’s crucial that you make at least the minimum payment by the due date on all your credit cards so your credit score doesn’t suffer.
But if you pay only the minimum each month and continue to use your card, you’ll accumulate debt quickly, your credit score could drop, and your interest payments will escalate.
What to do instead: Hit pause on using your credit card and find another way to cover your expenses. Do your best to pay more than the minimum each month so you can begin to reduce your debt.
2. When you have debt on several credit cards
When you’re carrying a significant balance on several cards, having one card with a low balance can give you the false impression that you have a lot of flexibility to make purchases. But this can be counterproductive if you’re trying to get on top of your overall debt levels.
What to do instead: Don’t overspend, even on cards with a low balance. Having a low balance on one or more cards is good for your credit utilization ratio — that’s the percentage of your credit that you’re using — which can have a positive impact on your overall credit score. That makes it easier to get balance transfer cards or low-interest cards so you can get out of debt faster.
The exception: If you know you’re able to use a credit card without overspending, pick one card for daily use and pay it off in full every month. That way, you can enjoy the convenience of paying with plastic without derailing your debt-payoff plan.
» MORE: How to pay off debt
3. When you play the balance-transfer game
Using a 0% or low-interest balance transfer credit card can be a powerful weapon against debt; it allows you to take a break from paying interest so you can focus on paying down the balance instead.
But many cards offer that low introductory rate only on transferred balances. Your new purchases could start accruing higher interest right away. So some of your balance is charged little or no interest, while another part is charged interest at a much higher rate. This can make balances, interest expenses and payments hard to track.
Also, transferring balances from one card to another usually involves a balance-transfer fee, which can reduce or even wipe out the savings you’re getting from not paying interest.
What to do instead: If you’ve got a precious 12-month window to pay down debt without accruing interest, don’t complicate your life by adding new purchases to the mix. Again, you could use a separate card for daily expenses, as long as you’re careful not to accumulate debt on that card.
4. When you have irregular income
When your income fluctuates, it can be hard to predict whether your future earnings will cover the credit card purchases you’re making right now. Freelancers, small-business owners, seasonal workers and people who get paid by commission should all be cautious about using credit cards to sustain them during lean months.
What to do instead: Create a budget using your average monthly income and stick to it. If you do use a credit card, try to keep your spending well within that budget.
5. When you overspend when using credit
Credit cards can be risky for people who struggle with a spending addiction, or a tendency to engage in too much retail therapy when feeling sad or stressed.
What to do instead: If you know that you tend to spend more when you’re putting your purchases on plastic, ease the temptation by using a debit card, or even cash.
The bottom line
If you’re working to reduce debt or get your spending more in line with your budget, continuing to use credit cards could endanger your overall plan. Until your circumstances change, you might want to give that plastic a rest.
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