7 Rules to Avoid Credit Card Debt as a Breadwinner

If you’re the breadwinner, the head of the household or a single parent, you have to make smart decisions with your money. You’re the only one bringing income into the household, so it’s imperative that you create a budget and stick with a spending plan. And unfortunately, credit card debt can throw your budget off track and complicate your personal finances. But as everyone knows, unexpected expenses happen. And if you don’t have enough cash, using a credit card might be the only option. However, if a larger percentage of your income goes toward paying off credit cards, that’s less money available for household expenses. Here are seven rules to live by if you want to avoid credit card debt as the breadwinner.

#1  Maintain only one card at a time

If you have good credit, you might qualify for as many credit cards as you like. But this doesn’t mean you need several credit cards. If you’re serious about keeping your debt to a minimum, you need to remove any temptation. And unfortunately, the more cards in your wallet, the more likely you’ll accumulate debt. Apply for one major credit card and make sure you pay off the balance each month.  

#2  Get into a habit of using debit cards

Just because you have a credit card doesn’t mean you have to use it for every purchase. As a rule of thumb, only use a credit card for an emergency. For everyday expenses, such as groceries, gas, entertainment, etc, use your bank debit card or get a prepaid debit card. This way, you only spend the cash you have available. 

#3  Build a solid emergency fund

Money experts recommend saving at least 10% of income for a rainy day. But as a single person or the breadwinner, you’ll want to save more — maybe 15% or 20% of your income. Remember, you don’t have anyone to fall back on or a financial safety net, so you need to plan accordingly for expenses that occur outside your budget. The bigger your savings account, the easier it’ll be to survive hardships. 

#4  Get disability insurance and health insurance

Even if you can’t afford the best health insurance, a mediocre policy is better than no health insurance. One trip to the emergency room can cost thousands of dollars; depending on the type of tests the hospital runs to diagnose your problem. Also, speak to your employer about disability insurance, or buy private disability insurance. Since you’re the only one bringing income into the house, you need to prepare for times when you might be unable to work due to medical problems. Without disability insurance or other income, you might have to rely on credit cards. 

#5  Save your tax refund

You may love getting a big tax refund each year. And with each check, you might go on a shopping spree or plan a vacation. Rather than spend all this money on fun, make sure you’re saving a percentage for a rainy day. Free money doesn’t fall in your lap every week, therefore, you need to take advantage of these opportunities. To maximize your tax refund, deposit this cash in a high-yield online savings account or a money market account. These accounts offer higher rates than regular savings accounts. 

#6  Get a second income stream

As a breadwinner, your income might only be enough to cover expenses. For that matter, you may not have a cushion to save a rainy day fund or deal with emergencies. Look for ways to generate extra income. A second income stream may include a part-time job on the weekends, or odd jobs you can do from time to time. 

#7  Set financial goals as a family

With only one income, it’s important that you and your family are on the same page financially. If your family understands the financial limitations you face, this can reduce some of the pressures you face to provide a certain type of lifestyle, which can actually contribute to credit card debt. As a family, set limits regarding how much you’ll spend on groceries, entertainment and family vacations.

A dual-income household can provide the extra cash you need to save and pay off other debts. But if you’re living off only your income, you’ll need to make sacrifices and stick with a budget to make sure there’s enough cash to pay all expenses. The more disposable income you have, the lower your risk of getting into credit card debt.

photo credit: Flickr