More than a third of families rely on credit cards, survey says. Here’s why you need to be careful – USA TODAY

Maurie Backman, The Motley Fool Published 7:00 a.m. ET Feb. 26, 2020

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Credit cards may be a helpful tool for consumers, but they should be used for the convenience and benefits they offer.

A large number of families fall back on credit cards out of necessity, and new data shows that medical costs are largely to blame.

About 69% of families with children say they make sacrifices to keep up with their medical expenses, according to anAflac survey. Thirty-seven percentof families rely on credit cards to pay their billsand deal with the aftermath.

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Credit cards are a great way to earn rewards for the things you buy, but when you fail to pay them off, you run into trouble.

Any time you carry a credit card balance, you automatically sign up to pay interest expensive interest on the things you charged. Too much credit card debt can negatively affect your credit score by driving your credit utilization into unfavorable territory. Utilization speaks to the amount of available credit you use at once, and a ratio above 30% is harmful to your score.

If you're forced to rely on credit cards to pay your bills and you rack up a high enough balance to exceed that 30% threshold, your credit score is likely to suffer, making it more difficult for you to borrow money the next time you need to.

If health care expenses drive you to have an unhealthy relationship with your credit cards, your best bet is to rethink your budget and build some emergency savings. That way, you'll have cash reserves to tap when your medical bills come in higher than expected.

Ideally, your emergency fund should have enough money in it to cover three to six months of essential bills, but if you can't hit that target, save as much as you can. A good bet is to sock away enough cash to cover your annual deductible, since you'll need to pay it before your insurer picks up the tab for your health care services.

Factor health care into your budget in a realistic fashion. Take a look at what your insurance premiums, deductiblesand co-pays cost, and figure out how much you should reasonably expect to spend each month. Account for those one-off situations that may pop up on occasion, such as a hospital visit. You dont need to plan on one every month, but it wouldnt hurt to budget for one visit a year. Aflac reportedthat 37% of families who went to the hospital within the past two years had to pay $500 or more out of pocket. Twenty-three percentspent $1,000 or more, so if your costs are similar, divvy that figure up among 12 months, so you set money aside as you need to.

Finally, take advantage of a health savings account, if you're eligible for one. To contribute to one of these accounts, you must be enrolled in a high-deductible health insurance plan, defined as an individual deductible of $1,400 or more, or a family-level deductible of $2,800 or more. The funds you allocate to a health savings account go in tax-free, which means you reap instant savings, lowering your financial burden on a whole and making it easier to keep up with your health care spending.

Medical bills are often unavoidable, and they can wreck your finances if you're not careful. If health care expenses drive you to rely on credit cards to an unhealthy degree, it's time to come up with a better plan before you wind up in a world of debt with no escape in sight.

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More than a third of families rely on credit cards, survey says. Here's why you need to be careful - USA TODAY