Are you guilty of these common credit card spending fails? Here’s why they happen and my favorite ways to avoid them.

Most people fall into one of two categories of credit card users: those who use them wisely without paying interest and those who get into trouble with high balances and high interest.

It’s easy to get in over your head with credit cards, but there are ways you can use them to your advantage. Understand the psychology behind credit cards and learn how to pay them off with some of my favorite smart spending tips.

Problem: You spend more when you pay with a credit card vs. cash.

Cash isn’t as popular these days, but you actually spend less with paper currency than plastic. A Dun & Bradstreet study found that people spend 12 to 18 percent more with credit cards instead of cash, which leads to more impulse buying. The reason? It’s less painful psychologically to swipe a card than it is to pay cash.

Solution: Track your every purchase to stick to your budget.

Once you know where you’re bleeding money (eating out three times a week could be an extra $120 or more a month), you can start reining in unnecessary spending. Try an app like YNAB to monitor your spending.

Store your credit cards somewhere safe so you’re not tempted. If you don’t like carrying cash, use a debit card and constantly check your balance so you know what’s in your bank account at all times.

Problem: Credit limits make your balance appear smaller.

We tend to focus on our credit limit when looking at a credit card statement, which instantly makes you think of how much money you could spend, rather than the amount you owe. This also causes you to see your balance as insignificant, making you more likely to spend.

Solution: Pay off the balance every month, stick to your budget.

Paying your credit cards in full always pays off. So too does a credit card with a rewards program that credits your balance. When you pay your balance in full every month and use your points on top of it, it’s like being paid to shop. Avoid any purchases you can’t pay for when your next credit card bill is due.

Problem: You pay down smaller balances, even if they have higher interest rates.

The Snowball Method suggests to ignore interest rates and pay off smaller balances first so you’re motivated to move on to the next card and continue paying off your debts. Except, it doesn’t build momentum for some people, who instead become complacent about debt. Meanwhile, interest is compounding on their cards.

Solution: Pay off balances strategically, higher interest first.

When you have multiple debts, concentrating on those with a higher interest rate first will put more money in your pocket in the long run. Figure out how much money you can pay toward your debts each month and aggressively pay down those with the highest interest rates.

Problem: You bail out with a balance transfer, then rack up more debt.

It seems serendipitous when you’re offered a 0% balance transfer, but beware. Balance transfers could potentially cost you more. If you miss a payment, your interest rate will rise dramatically and you may be subject to an annual fee or high late fees. As many as 54 percent of consumers who transfer their balances don’t achieve their goal of paying off debt and end up with balances with high interest rates. You may even lower your credit score if you cancel the previous card.

Solution: Commit to paying off your balances and don’t use the cards until they’re paid off.

Unless you also have an introductory 0% APR, resist the urge to make purchases on the same card because of interest. Also consider the balance transfer fee, which can be 3 to 5 percent, as well as your ability to pay off the balance before the promotion ends and what the interest rate would then be.

With persistence and patience, you can become debt-free. Find the debt payoff method that inspires you the most to keep a zero balance and keep these ideas in mind the next time you swipe your card or transfer a balance.

Written by Margie Monin Dombrowski, who blogs at

Participation Pays Off: What’s your most problematic overspending habit and how are you trying to fix it?

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