credit cardsNothing screams “free money!” like a piece of plastic that gets you all the things you want without having to pay for them. Right away, at least. There’s no better way to rack up thousands of dollars in debt on purchases that you may or may not really need than a credit card – and if money is the root of all evil, then surely credit cards are the devil’s right hand. Right?

Though the idea that credit cards are a dangerous tool to mess around with is widely shared, many people still seem to struggle with overwhelming credit card debt. Every month, balances get carried over and added to the next month, creating a snowball of interest payments. So is it actually possible to stay frugal and make wise financial decisions even while regularly using a credit card? Or is it best to just cut up every Visa and MasterCard in our wallets?

With a properly planned budget and a calendar, it is more than possible to keep your credit card balance low and manageable – meaning less interest that you have to pay on top of what you owe. Whether you’re wary of applying for your first credit card, struggling with reducing your principal, or somewhere in between, careful financial management and budget planning are key to judiciously wielding a credit card.

Plan a Monthly Budget

Consider your monthly expenses, and place them into categories – such as groceries, rent, utilities, gas, and entertainment. Estimate how much you spend on each of these categories in a month, and add them up. Subtract this number from your monthly income. If you end up with a negative number, think about how you can reduce your monthly expenses (this typically comes out of the entertainment or “extras” category). If you have money left over – great! Consider placing this extra money into a savings or investment account. Planning a budget may seem elementary, but being aware of where your money goes can help you decide when and how to wisely use your credit card.

Build a Strategy to Pay Off Your Balancebudget

Ideally, you want to keep your balance as close to zero as possible. However, this may not always be possible if you’ve already accumulated some debt. Use your budget to see where you can reduce your expenditures, and put this extra money toward reducing your balance. If you have multiple credit cards, you may want to consider first paying off the card that has higher interest. Paying more than the minimum on your monthly bill will also help to reduce the amount you will owe in interest.

Foreign Transaction Fees

If you’re travelling overseas, keep in mind that many credit card companies charge what is known as a “foreign transaction fee.” This fee can vary between issuing banks: for example, this Henrico credit union charges a 1% fee on all foreign transactions. Fees can often be as much as 2-3% of your purchase – and if you plan on regularly using your credit card while abroad, you will be in for a surprise when your bill arrives. When travelling out of the country, contact the bank that issued your credit card to see what fees are involved. If there’s a fee, consider using cash or a credit card that does not charge a fee.

Bonus Tip: Review Your Statements Frequently

Identity theft is a reality – be sure to check your credit statements frequently and report any suspicious or inaccurate charges immediately.

It can be tempting to use a credit card recklessly. However, with careful budget planning and using common sense, it’s more than possible to use a credit card to your advantage and build or repair valuable credit history. That being said – if you know that you can’t reasonably use a credit card, or if your debt is unmanageable, it may be best to use only cash or a debit card for your purchases.