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Think of debt like an email inbox.

It’s exciting the first time. When you got your first email, maybe it was for something cool. You got mail here and there and it was no big deal.

One thing leads to another, and now you’ve got over 1,000 emails sitting in your inbox and half of them are to the Percy Jackson fan fiction newsletter you swear you never subscribed to.

Debt can be a similar beast. It can start small. Maybe it was useful for buying a car or an education. But acquiring too much debt can be a burden.

And this is a common experience. A new survey found that 7 in 10 Americans say debt keeps them from saving or building wealth.

It’s not just older folks with mortgages and marriages — young adults are carrying record-high balances too.

Credit card debt just hit $1.21 trillion across the US, a number so big it’s more than the GDPs of Sweden and Norway. Combined.

Debt itself isn’t evil. It is a tool that can be leveraged to get you through school, buy a sweet new ride (zoom!), or start a business.

But if used irresponsibly, debt can be the barrier to your financial wellbeing. Having to turn opportunities down because you are uncertain if you can cover your debt payments is a reality many face.

So you need to learn how to use debt so that it is advantageous to you.

Credit cards are one of the most common forms of debt. Let’s make sure you’re using it correctly.

Credit cards will smile in your face then rip the brakes out your shiny pink ferrari. True story.

Ok, maybe not quite — but they have their risks.

The benefits are easy to define:

But they also have really high interest rates, and have some pretty confusing jargon surrounding them that makes them harder to use.

Here’s your crash course in turning that little piece of plastic into your financial hype man:

Your credit card companies are not like your sweet professor. If you tell them you turned your homework (paid your credit card) late because your dog’s grandmother died, they won’t care.

Crazy as it may seem, if you pay your card late, there’s not much you can do about it.

Payment history is the biggest part of your credit score — around 35%.

Even one late payment can haunt your score for years. Pay your card on time, every time, and you’ll easily grow your score and avoid issues.

Your credit card usually shows you three balances: the minimum balance, current balance, and the statement balance.

Only paying the minimum means that while you’ll avoid late fees, you’ll still get charged interest on the rest that you haven’t paid. We want to avoid interest.

If you only pay the minimum, you’re basically donating to your bank’s yacht fund. They have enough yachts.

Paying your current balance is not as bad as only paying your minimum, but it could stifle building your credit score. Stick to paying off your statement balance to maximize your score.

Your statement balance is how much you owe from your most recent loan period. Pay that off in full, and you’ll avoid paying interest! YAY!

You’re borrowing money for free if you pay it back by the due date.

Miss that window, and you’re suddenly paying 20-30% interest — which is basically setting your cash on fire.

It’s not. But it’s worth avoiding.

Treat your credit card like cash. Don’t spend more on your card than what you have in the bank.

Sometimes you may be in a financial bind. Credit cards should be considered as a last resort in these situations rather than an easy solution to cash flow problems. If they become an easy solution repetitively, it may no longer be easy to pay them off.

If your limit is $2,000, act like it’s $600.

Credit utilization (how much of your credit limit you use in a one-month period) makes up about 30% of your credit score. Credit card companies want you to keep your utilization under 30%, ideally under 10%.

It seems silly. Why give me a $2,000 limit if you don’t want me to use it? Merits of the credit scoring system aside, shoot to not spend more than 30% of your credit limit on your card, even if you can afford to.

If you want a trick to keep your utilization low reply to this email!

You don’t need to overhaul your whole life to use your credit card correctly. Just automate it.

Set up your credit card to auto-pay your full statement balance (or a set amount if you can’t do full yet).

That one move protects your credit score and your sanity.

Just because your credit card is on autopay doesn’t mean you shouldn’t check what you’re spending on.

You should be aware of your spending and also making sure that you have enough in your bank to cover the automatic transfer. If you don’t, you could face overdraft fees.

If you’re not ready for full auto-pay (or your bank doesn’t offer them), set a monthly reminder in your preferred method (sticky note, reminders, G-Cal) to make sure you pay your card off on time, in full, every month.

The goal is to make sure that your credit card remains an awesome tool, instead of a hammer that you just smashed your finger with.

Also, quick reminder that I am not sponsored by any of the tools I note here. I wish I was! These are just the tools I use.

Today, open your credit card app and set one of the following:

That’s it.
One small system means less stress, better credit, and no surprise “oops” payments eating your savings.

Let’s make sure that debt is providing you the life you want, not restricting it. ;)

Thank you so much for being a part of this newsletter. I am grateful to write to you weekly and I hope this helps you feel more confident with your finances.

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