Written by Kevin Payne 

Credit cards can be a useful tool to help you make purchases or pay bills instead of using cash or a check and paying them off later. Some credit cards reward card spending, earning cash back, points and miles you can use toward travel, online shopping, and other rewards.

They can also be risky to use, especially if you don't have the money to pay off your balance. Improper credit card use can get you into debt and potentially hurt your credit. Knowing how and when to use credit cards will help you build credit and keep you out of debt.

Consumer Debt And Credit Cards

Credit card debt is on the rise in America. On November 15, 2022, the Federal Reserve Bank of New York's Center for Microeconomic Data issued its Quarterly Report on Household Debt and Credit for Q3 2022.

The report showed that credit card balances increased by $38 billion from the previous year, the largest year-to-year increase in 20 years. U.S. consumer credit card balances are reaching near pre-pandemic levels and continue to grow. 

Recent data from the American Bankers Association shows that Americans carried a balance at some point on 53% of all active credit card accounts in 2022 Q2. 

With Americans continuing to carry credit card balances from month to month, it's worth looking at data on interest rates for credit cards. The average credit card APR for 2022 Q3 was 16.27%, while the average APR on cards accruing interest in 2022 Q3 was 18.43%. The most eye-opening statistic is that the average APR on new card offers reached 22.91%.

What Is APR? 

APR stands for annual percentage rate. It represents the yearly interest charged on lending products, including credit cards. It's the cost of borrowing money. 

Many credit cards have variable APRs, meaning your rate can go up or down at any time. APR is often tied to the federal prime rate, the lowest rate of interest at which banks will lend money.

As the prime rate increases or decreases, so will your card's APR. 

Credit card issuers may charge different APRs for different types of charges. Your card may have one APR for purchases, another for cash advances, and another for balance transfers if


How Credit Cards Work

Credit cards allow consumers to make purchases and pay them back later. Credit card issuers generally offer a grace period until the payment due date to pay the amount owed. If you carry a balance on your card, the credit card company will charge you interest on the outstanding balance. 

Some credit cards offer introductory APR offers on new purchases or balance transfers. Introductory APR offers allow you to make purchases or transfer over existing debt and pay it off at 0% interest for a set period. Introductory APR offers allow you to finance purchases and debt without paying interest, making them attractive to individuals planning on making large purchases soon or people with existing credit card debt.

 Remember that you will have to pay a penalty APR on the remaining balance if you do not pay off the remaining balance before the introductory period ends. Card issuers may charge a fee to transfer a balance to a new card, typically a percentage of the total balance being transferred. 

How To Avoid Credit Card Debt

While credit cards are useful, they are only beneficial when used responsibly. Here are some tips for avoiding credit card debt. 

Spend within your means

Only spend money you have on credit cards if you can pay them off at the end of the month. Avoid spending more than you make. Credit cards allow you to make everyday purchases instead of carrying cash, but ensure you have the funds necessary to pay your monthly credit card bill. 

Make on-time payments

Paying your card bill on time will help you avoid costly late charges from your credit card issuer. If you need help remembering to pay your monthly bill, most card issuers allow you to schedule automatic payments. Late fees can run around $29 or more, depending on the card and issuer. 

Pay the balance in full each month

Interest charges can easily cause your credit card balance to grow out of control. You can avoid expensive interest charges by paying your card's full balance every month. Set aside the necessary funds each month for your credit card bill. 

Only transfer a balance if it makes sense

Performing a balance transfer can help you consolidate your existing credit card debt into one monthly bill and avoid interest charges for a specified period. Many card issuers charge a balance fee when you transfer over debt from another credit card. Balance transfer fees can range from one to five percent of the transferred balance or more, depending on the issuer. Depending on the fee, you could end up paying more than you would by paying off the existing card balances. Also, continued transfer balances can lead to an ever-growing card balance that you never seem to pay off. 

Keep your utilization ratio low 

If it's not possible to pay off your balance in full each month, try to keep your utilization ratio low. Your credit utilization ratio is the percentage of available credit currently in use. Using a high percentage of your available credit lines makes it more challenging to pay off debt and can negatively impact your credit score. 

Stay informed

It's always a good idea to read through your credit card terms before applying for a credit card or shortly after. Pay attention to card APRs, how APRs are assigned, fees charged by the card issuer, and other pertinent details.