3 Warning Signs You’re Too Dependent on Credit Cards (and What To Do ASAP)

Credit cards are certainly convenient, and when used responsibly, many can provide significant rewards, like points and miles. But if you're not paying off your full balance every month, or if you use credit cards for everything simply out of habit, you could be heading down the path to financial difficulty.

Here's what to watch out for and how to keep out of trouble when using credit cards.

There are plenty of valid reasons to open a credit card. It's often a good idea to have a credit card in case of a genuine emergency, or even for something as mundane as making a hotel or car rental reservation.

But it's another thing entirely to rely on your credit card to regularly cover your monthly bills . This is a sign that you've got an imbalance between your income and your expenses. Putting the excess on your credit card every month could lead to spiraling balances and a true financial emergency.

You might not think that using your credit card for a $6 latte here or a $10 burrito there could add much to your credit card bill over time. But if you aren't paying attention, even small charges can rapidly add up, especially if they're accruing interest.

Imagine, for example, that three times a week you get your $10 burrito and $6 latte. Over the course of a year, that adds up to about $2,500. Add in a 25% credit card interest rate, and if you aren't paying attention, you could end up with a balance of over $24,000 after just five years.

The point is that even relatively small charges made regularly can quickly add up over time. If you're not checking your balance regularly, your credit card dependence could put you in a deep financial hole.

According to a study by Capital One , more than half of Gen Z respondents believe that carrying a balance month to month actually helps their credit score. That's a myth that needs to be dispelled immediately.

Your payment history is the single largest factor in your FICO credit score, at 35%, but the amount you owe is right behind it, making up 30% of your score. While using your credit cards and paying them off can definitely help your score, carrying a balance hurts. This is particularly true if you push your credit utilization, or the percentage you use of your available credit, above 30%.

Casually using your credit cards and piling up balances is not the path to a good credit score.

Here are some action steps you can take to avoid being dependent on your credit cards and avoid digging a financial hole with your credit cards:

Check your credit utilization, both overall and on each individual card: Your score can still tank if you've got one maxed-out card, even if you rarely touch the others. For quick credit score repair, put extra payments towards whichever one has the highest credit utilization first.

Build a cash cushion: An emergency fund is the bedrock of a good financial plan. Having cash in reserve can help you avoid going into debt for life's unexpected financial surprises. Even $500 or $1,000 is a good start to help you from sliding into debt.

Monitor your spending: Credit card spending often doesn't get recorded properly, even by those who are otherwise good at budgeting. While it's fairly easy to track money going into and out of your bank account, credit card spending, especially for spontaneous, low-cost items, often gets overlooked. Make an effort to record all of your credit card purchases and reconcile them with your overall budget.

Credit cards aren't the enemy. In fact, when used properly, they can actually help boost your credit score. But if racking up charges for everyday items becomes your normal routine, you might find yourself with a problematic level of debt faster than you imagine.

This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.

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