Summer can bring many opportunities to spend money. Without a plan, this can lead to excessive credit card debt. Let us take a minute to discuss how to develop a plan to avoid debt completely, how credit cards can cost you money, and how to avoid and minimize debt now. 

Develop a Plan to Avoid Debt:

      1. Develop your plan six or more months before summer. 
  1. Determine how much your summer expenses will cost. What is a realistic vacation for your family? Look for local opportunities to explore without incurring the cost of lodging and airfare. Would your children benefit from a summer camp? Look for discounts or free programs available in your area. For example, Military Kid camps can be free of charge for children of service members. How much will school supplies cost for your family? Look for programs that supply discounted or free school supplies. Shop at garage sales and thrift stores for great bargains on gently used clothes. 
  2. Calculate how much you can save each month. Review your spending plan and track your expenses. Do you have areas you can lower such as eating out or extra subscriptions that you do not need or use? Does your home need any repairs? Check to see if the repair is something you can do yourself or if a professional is needed. Find out if you can save money by doing the demolition yourself and having the professionals complete the upgrade. Every little bit saved now will take the pressure off when summer arrives. 
  3. Determine the best place to keep your summer savings account. Some banks have vacation accounts with slightly higher interest rates. These accounts accumulate all year and then become available at the beginning of June. Research the criteria for different money market accounts and short-term bonds. If none of these options are available to you, opening an additional savings account will allow you to track the amount saved for this goal. Mostly remember that you will need this money soon and you will need it liquid. 
  4. Use your credit card, earn points or rewards if your credit card has them, and pay the balance off completely each month to avoid accumulating debt. 

How Credit Cards Cost You Money:

  1. High utilization of your credit card can negatively affect your credit score even if you pay off the full balance each month. This is especially important to track if you are planning on buying a house. 
  2. Certain credit cards have an annual fee. If you choose to have a credit card with an annual fee, ensure the benefits of the card outweigh the annual fee. Service members should review the guidelines of the Service Member Civil Relief Act (SCRA) to see if they qualify to have annual fees waived and interest rates lowered.
  3. “A credit card’s interest rate is the price you pay for borrowing money. On most cards, you can avoid paying interest on purchases if you pay your balance in full each month by the due date.” 
  4. “The APR, or annual percentage rate, is the standard way to compare how much loans cost.”
  5. “A grace period is the period between the end of a billing cycle and the date your payment is due.” 
  6. “A balance transfer lets you move an outstanding balance from one credit card to another, sometimes for a fee. The promotional interest rate for most balance transfers lasts for a limited time.” 
  7. A more complete description of the above terms can be found here. 
  8. If you cannot pay your bill refer to, “What should I do if I can’t pay my credit card bills?” here.
  9. “To see the impact of paying off a credit card with minimum payments only, consider a credit card balance of $5,000, at the current average APR of 20.28% (as of June 2021), and minimum payment as 2% of your credit card balance. Making minimum payments only, it would take you over 30 years and a total of $23,399 to pay off that initial $5,000 balance. That does not include any fees you might pay over the life of the credit card balance.”  Source

How to Avoid or Minimize Debt Now:

  1. Make a list of summer wants and needs. Remember you and your family can still have an amazing summer without accumulating debt.
  2. Track each expense closely in your monthly spending plan. Compare the value of each of these expenses to the value of each expense on your summer wants and needs list. This may require sacrifice now but staying out of debt will lead to fewer sacrifices in the future. 
  3. Make payments on your credit card more frequently. You can pay your credit card multiple times a month to keep the balance under control. This frequent review of your credit card account balance can also help keep you accountable for how much you are spending. When paying only once a month the balance can feel overwhelming and it is easier to forget how much is already on the card. 
  4. Find extra ways to earn money. Sell items or work extra jobs. 
  5. If you still find it hard to pay off the balance each month, use a tool such as Power Pay to assist in making a payoff plan.

The biggest thing to remember is to take charge of the situation. If you need education on credit cards, utilize resources such as the ones on the Consumer Financial Protection Bureau website linked here. If you need assistance creating a spending plan, reach out to an Accredited Financial Counselor (AFC®). Enjoy your summer by keeping your spending in check so that you can also enjoy your fall and winter!

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