About 70% of Americans have at least one credit card, and when used correctly, credit cards can be a good thing. After all, they let you not only build credit, but you can also reap other benefits such as cash back and purchase protection. On the other hand, credit card misuse can lead to a host of negative financial repercussions. Currently, an estimated 38% of U.S. households are burdened with credit card debt. In fact, the average American carries 52% more debt today than he or she did a decade ago. If you're going to use a credit card, be sure to follow these key rules to stay out of trouble.


1. Treat your credit card like a debit card

Here's how a debit card basically works: You have a certain amount of money in your checking account, and every time you pay with a debit card, that amount is deducted from your balance. So if you have $300 in your checking account at the start of the week and you use your debit card to pay for $300 in groceries, you won't be able to use your card again until you add money to your account.

Credit cards, as you probably know, work much differently. Because credit cards aren't linked to your bank account, you can charge up a storm regardless of how much money you actually have. But that's why so many people get into trouble with credit cards. A much safer way to use your credit card is to treat it like a debit card and make sure to never charge more than what you can immediately pay for.

2. Don't be late with payments

Late payments are an easy way to not only rack up additional fees but also damage your credit score in the process. Any payment that's 90 days or more past due could affect your credit score for up to seven years. And it doesn't matter whether you're late on a small payment or a large one -- your credit score can suffer either way. Also, while payments that are 30 or 60 days late typically don't have the same damaging effect as those that hit the 90-day mark, a series of shorter late payments could also ding your credit.

Fortunately, there's one easy way to avoid late payments. If you set up your bills to get paid automatically, which you can typically do through your credit card company or bank, you'll avoid falling victim to forgetfulness at the very least. You can also review your recurring bills, like utilities and cable, to see which are eligible for automatic payments.

3. Pay every bill in full

Here's a little secret: Credit card companies don't want you to pay your bill in full every month. In fact, they'd rather that you stick to your minimum payments and carry a balance so that they can collect interest charges. When you fail to pay off your credit card in full, you're basically throwing money away in the form of interest fees, and the longer you carry a balance, the more money you'll end up wasting for no good reason.

Imagine you make a $1,000 purchase you can't really afford and that it takes you two years to pay it off. At 14% interest, that $1,000 item will end up costing you $1,152. Remember, your credit card company is allowed to charge you interest not just on the principal amount you owe, but also on the interest you accrue. Worse yet, many credit card companies compound interest on a daily basis, which means that for every day you carry a balance, you're paying just a bit more for the privilege of having charged whatever it was you bought. Paying your balance in full every month is the only way to avoid what could otherwise be a very nasty cycle.

4. Keep your debt-to-credit ratio low

Your debt-to-credit ratio is a measure of how much of your available credit you're actually using. If you have two credit cards, each with a $2,000 credit limit, and your current balance between both is $800, your debt-to-credit ration is 20%. While you can technically get away with charging enough to max out your total credit limit, doing so can negatively affect your credit score and make you a less appealing borrower in the eyes of lenders. That's why it's important to keep your debt-to-credit ratio as low as possible -- ideally, below the 30%-mark. Not only will this help preserve your credit score, but it's also a good practice for keeping your spending in check.

Credit cards can be a dangerous thing when used incorrectly. But as long as you play by the rules, you can enjoy the convenience of credit cards and the numerous advantages that come with them.