man paying in restaurant with credit card BH.width .jpg

Even Wealthy Americans Are Racking Up Credit Card Debt. Here’s How to Avoid It

A man sitting at a table in a casual restaurant and tapping his credit card on the payment reader being held by the waiter.

Image source: Getty Images

When we think about consumers with credit card debt, we may be inclined to imagine lower or moderate earners who rely on the ability to charge expenses in the absence of having the money on hand. But it may surprise you to learn that 24% of wealthy households racked up debt in 2023, according to a survey by Edelman Financial Engines.

Of course, credit card debt is problematic no matter your income, since it has the potential to cost you a lot of money in interest. It can also cause damage to your credit score if you rack up too much of it. So it pays to take these steps to avoid credit card debt going forward.

1. Check your balances weekly

It doesn’t matter whether you earn $150,000 a year or $35,000. If you don’t track your credit card spending, you risk ending up with a balance you can’t pay off in full.

So a good bet is to check your credit cards weekly rather than wait until the end of the month. This way, if you see by the mid-month point, for example, that you’ve already spent more than expected, you’ll know to cut back.

2. Keep your larger expenses affordable

You might eventually end up with credit card debt because you keep charging things like groceries or gas and don’t have enough money to pay your bills in full. But in reality, your weekly food bill or fill-up probably isn’t what’s causing you to land in debt. Rather, it’s most likely that your larger expenses are too costly given your paycheck.

Let’s say your housing costs are eating up 40% of your pay. That’s well beyond the 30% threshold that’s generally recommended. If you’re spending more than 30% of your income on rent, for example, consider moving to a new rental if you can do so affordably when your lease comes up for renewal. It could help you avoid ongoing debt because you’ll be freeing up more money for smaller but necessary expenses, like food.

3. When all else fails, throw your credit cards away

Some people just can’t break the habit of impulse spending. If you’ve tried to cut back on it or eliminate it numerous times and have failed, it may be time to stop using credit cards altogether — either that, or keep one credit card with a pretty low spending limit on hand for emergencies only.

It’s not like your risk of overspending is zero if you don’t have credit cards. But you may be less likely to overspend if you don’t actually give yourself access to credit.

It’s unfortunate that even wealthier folks are adding to their credit card debt. But breaking that habit could do a world of good for your finances, whether you’re wealthy or not.

And if you’re already in debt, try to come up with a payoff plan that has you free of it as quickly as possible. That could involve a combination of consolidating your credit card balances into a lower-cost personal loan and taking on a side hustle temporarily to free up the cash to make that loan balance disappear once and for all.

Our picks for 2024’s best credit cards

Our experts carefully review the most popular offers and select those that are worthy of a spot in your wallet. These standout cards come with fantastic benefits like sign-up bonuses worth $200 or more, 0% intro APR for up to 21 months, and cash back rates up to 5%.

Click here to see our top credit cards

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Posts