The ’$20 Rule‘ & How to Control Credit Card Debt

A lot of advice about how to control credit card debt is simple common sense — pay off your bills in full each month, and don’t finance big-ticket items at a high interest rate.

Some of the advice is a bit unorthodox, such as freezing your credit cards in ice and melting only for emergencies.

But, sometimes, we hear something new and practical, like the $20 rule.

What is the $20 Rule?

The Consumer Financial Protection Bureau recently released a worksheet that people can use to get a handle on their credit card spending and debt.

One piece of advice that caught our eye is the “$20 rule.”

To begin practicing the $20 rule, look at last month’s credit card statement. On your statement, circle the credit card transactions you had for less than $20.

Add up the total you spent on these small purchases and make a list of the times and places that you used your credit card for the less than $20 purchases.

Then, circle the times when you could have paid cash instead.

You might be surprised at how much these small transactions add up to large amounts.

And, unless you pay your full balance off every month, interest and fees can add about 20% more to the cost of an item for average credit card customers.

$20 is a pretty handy cutoff point. It’s the kind of thing you can keep in the back of your mind as you go through your day.

Whenever you’re tempted to pay for a small purchase with your credit card, stop and use cash (or your debit card) instead. This will prevent those hard-to-remember small charges from adding up to big debt.

What About Cash Back?

Now, the immediate answer from many of you will be, “I get cash back on my credit card purchases. I have to give that up?”

This is a fair point — but it can be difficult to be disciplined enough to keep those purchases from adding up and carrying over month-to-month.

Only 45% of Americans regularly pay their monthly credit card balance in full.

The fact is, there is a rather small percentage of the population that can really take advantage of those cash back (and other) deals without running up high-interest debt.

For the rest of us, the $20 rule is a great strategy to manage credit card debt and spend smarter.

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