Using Credit Cards More Often? Here's How Experts Say You Should Manage

Key Takeaways

• As people take out debt to pay for essential items, many find it harder to pay off high borrowing costs.
• Experts said that reevaluating your spending and living within your means can help you avoid debt.
• Moving your debt to a lower interest rate card can reduce payments if you have taken out debt.

As households struggle to contend with inflation, credit card debt is mounting for many.

Inflation has driven up prices on everything from groceries to rent, and more people are trying to keep up by paying for necessities with credit cards. However, elevated borrowing costs can make higher prices even more painful, leaving some households struggling to manage their debt.

“We have stereotypes that I think are often incorrect of people that are going out and splurging on luxury items," said certified financial planner Bobbi Rebell. "But if you look at the real reasons why people go into debt. It's often things like medical expenses or groceries—just paying for everyday bills.”

This has sparked concerns among economists and financial planners who have seen more consumers take out debt. Here is how experts say you should manage your credit card spending during this period of inflation. They urge trying to avoid the debt altogether — but for those who can’t, they offer suggestions for getting out of trouble.

Make Sure You Really Need to Use Credit—You May Have Alternatives

The first step to managing your debt may be avoiding it in the first place.

Being mindful of when and how you use your credit card can help you stop debt before it starts, said Sarah Paulson, a certified financial planner with Valkyrie Financial.

Look For Other Sources of Income

If you can't afford necessities, there may be ways to bring in extra money rather than borrowing, experts said.

“Go through your closet and see what you can monetize,” Rebell said. “We often have gift certificates we don't use; we have gifts that we forget to return, right? So we should think about all of those things before we go into debt.”

In the end, you may have to start from scratch and completely re-do your budget, Rebell said.

"Being realistic, short term, you want to think about, 'What do I actually have to pay for? What do I actually earn? How do I get there? And what can I cut out?'" she said.

Tap Into Savings Instead of Using Your Credit Card

If you have an emergency fund and are struggling to afford higher prices, now may be the time to tap it, according to experts. Using savings is often the more budget-friendly option, Rebell said.

“I get people that say, ‘Oh, I'd rather throw it on a credit card than tap into my savings,'" Rebell said. "Well, no. That is what the savings are for.”

If consumers don’t pay off their full statement, high interest rates add more money to their bills than many think, Paulson said. A recent study found half of Americans are unaware of how expensive borrowing on a credit card actually is. The average rate on credit cards has risen seven percentage points since 2022, to 21.51%.

“Unfortunately, $1,000 is not a lot of money to have — but it is a lot of money to owe,” Paulson said.

If You Have to Use Credit, These Two Tips Can Help Keep It Under Control

While finding alternative income or using savings first can help, they're not always an option. If you have to take on debt, being mindful of your interest rates and intentional with your payments can help you manage.

Pay Off Debt With the Highest Interest First

Experts advise paying down debt with high interest rates before the borrowing costs add even more costs to your budget.

Credit card rates often compound daily, so higher borrowing costs add up quickly. For example, if you pay off $1,000 in credit card debt over six months, you would end up paying more than $60 extra in interest.

Paying off debt with the highest interest rates first can save you money in the long run. Even if the loan size is greater, paying off a loan with higher borrowing costs will be the best way to allocate your money, Paulson said.

Find the Lowest Interest Rates on Outstanding Balances

You can also move your debt to a credit card with a lower interest rate or consolidate your balances to get a lower interest rate, experts said.

As inflation data improves, the Federal Reserve is widely expected to cut its influential federal funds rate at its next meeting. That rate impacts borrowing costs of all kinds, including credit card interest rates.

Many credit card companies have already dropped interest rates, and consumers in debt need to stay informed about what their lender is offering, Rebell said.

“Call your credit card companies and point out to them, ‘Hey, I see that rates are going down. What can you do for me?’" she said. "Tell them, ‘If you don't give me a better rate, maybe I'll go move my debt to another credit card that does offer a better rate,’ and very often, they're going to be amenable to that.”