Yes, you can have a credit card and avoid debt. Here's how

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Yes, you can have a credit card and avoid debt. Here's how


For some millennials, many of whom are already overburdened by student loans, credit cards can seem synonymous with debt.

Because of this, many millennials, scared of debt, opt for a life without credit cards. I should know -- I was in the same situation and didn't get my first credit card until age 28.

According to a July 2016 Credit Karma and Qualtrics survey, more than a third of millennials (38 percent) don't have a credit card. The biggest reason? Having an aversion to debt.

Not having a credit card may seem like a good way to avoid debt, but it could prevent you from building your credit and having a healthy credit score. And your credit score could affect your ability to get an apartment, refinance your student loans and more.

While credit cards can lead to debt, it is possible to have a credit card and avoid debt. But how?

1. Only use your credit card for regular expenses to help avoid frivolous spending.

One strategy that may help you avoid credit card debt is only using your credit cards for things you've already budgeted for.

"My best tip to build your credit and have a credit card without running up debt is to only use the credit card as a way to pay your recurring monthly bills," says David Rae, Certified Financial Planner™ at Trilogy Financial Services.

For example, you can put recurring bills such as Netflix and car insurance on your credit card.

The idea is that you've already budgeted for recurring bills -- so this can be a responsible, regular use of a credit card without also using your card to increase spending or run up debt.

Rae also recommends not carrying your card on your person, to avoid unnecessary splurges. And most importantly? He recommends paying the bill in full and on time each month to stay debt-free and help build your credit.

2. Pay off your credit card weekly to manage cash flow and avoid debt.

It's easy to swipe your credit card throughout the month, without being totally sure how much you're spending. Then, when you get the bill, you may be surprised and find yourself unable to pay the balance in full, which could lead to debt.

Paying off your credit card weekly or bi-weekly can prompt you to check in on your spending more often and better organize your cash flow.

If you realize you're spending too much, you can slow down in the following weeks. Just be sure to check with your credit card provider to see if you're allowed to make multiple payments per month.

3. Sign up for automatic payments so you never miss a payment.

Another way you may be able to avoid credit card debt is by signing up for automatic payments each month.

"One of the best ways to manage a credit card without going into debt is setting an automatic payment every month to pay the balance in full. This can help build your credit score while keeping you out of debt," says Ben Malick, chartered financial analyst at Three Nine Financial.

To get started, check with your credit card provider and see if you can enroll in automatic payments by linking your checking account.

While this can be a great solution to help avoid credit card debt, it only works if you have the means to pay your bill in full each month. If you decide to go this route, it's important to stay on top of your account balances to avoid any overdraft fees.

"This strategy is best when you have a bit of a buffer in your checking account," Malick says.

4. Start small with your first credit card.

If you want to avoid credit card debt, you could try to start small and dip your toes in the water by getting a credit card with a small credit limit. Of course, what you ultimately get approved for is based on your credit history.

"If you're concerned, start small -- most banks [may] issue you a card with a $500 limit and will raise it upon request, assuming your income will support it," says Brad Berger, CFP® and author of "Stop Trying to Keep Up With The Joneses: They're Broke Anyway."

If you haven't opted for over-the-limit transactions on your credit card, having a low credit limit can help ensure that you won't get into thousands of dollars of debt overnight and can be a good starting point if you're trying to build credit with your first credit card.

Keep in mind that while a small credit limit can be useful to avoid debt, you'll want to keep tabs on your spending and keep your balances low, which can be even more challenging when you have a low credit limit.

This is because your credit utilization, or how much of your total credit limit you use, is one of the primary factors used to calculate your credit score.

It's typically recommended to keep your balances below 20 to 30 percent of your credit limit. In other words, if you have a credit limit of $500, you'll want to keep your balance between $100 and $150 at most.

5. Avoid using your credit card for online apps and purchases to prevent overspending.

It's easier than ever to have everything you want at your fingertips. With just a few pushes of a button or a few clicks, you can have a car pick you up, get food delivered straight to your door or buy almost anything your heart desires.

While it's exciting and useful to have these things at your disposal, this level of convenience, when coupled with a credit card, could lead to increased spending and credit card debt.

This may be in part because online shopping can remove the experience of parting with cash or even swiping and signing to confirm your purchase.

If you have a history of mindless spending, it may be wise to delete your credit card number off your favorite sites -- for example, Amazon or eBay -- and remove apps on which you can spend money from your phone.

Bottom line

Credit cards don't automatically lead to debt, and there may be many benefits to having and regularly using a credit card, such as building a good credit score over time.

It's possible to have a credit card and avoid debt, so long as you use it wisely.

Methodology: Credit Karma, in partnership with Qualtrics, surveyed 1,016 18-34 year-olds between May 25 and June 3 to ask their opinions on 33 questions. All data was aggregated and anonymized.

About the Author: Melanie Lockert is a freelance writer and editor currently living in Portland, Oregon. She is passionate about education, financial literacy and empowering people to take control of their finances. Her work has been featured on Rockstar Finance, GoGirl Finance, The Globe and Mail and more.

Editorial Note: The opinions you read here come from our editorial team. While compensation may affect which companies we write about and products we review, our marketing partners don't review, approve or endorse our editorial content. Our content is accurate (to the best of our knowledge) when we initially post it, but we don't guarantee the accuracy or completeness of the information provided. You can visit the company's website to get complete details about a product. See an error in an article? Use this form to report it to our editorial team. For questions about your Credit Karma account, please submit a help request to our support team.

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Good article but how do you rebuild your credit on a low income that doesn't meet the requirements to open a credit card account? Do prepaid credit cards help rebuild credit reports? 

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Prepaid credit cards DO NOT help rebuild credit. On the other hand, secured credit cards can help to rebuild your credit. While both types of cards require a deposit, secured credit cards have regular reporting to the major credit bureaus.

From the navigation menu at the top of the page, goto Credit Cards>Search All Credit Cards. In the left margin under Features you can filter for Secured Credit Cards (also choose View All Offers).

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A secured credit card is the way to go. You pay a security deposit (read the terms to see if it's refundable without closing the account), and get a modest credit limit. I started with a 'thin' credit file, i.e. no credit score at all), kept my credit usage low (below 20%), and now have a fair credit score of 662. That's after getting the card in July of this year, paying off the balance in full, and setting up automatic payments that will pay off all balances in full. There's no need to carry a balance to 'help' your credit score. The credit card companies make their meat and potatoes income from Merchant Fees. Be a 'deadbeat' -- pay off your entire balance each and every month.

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