Essential Tips To Using Your Credit Card Wisely
For many people, credit card usage is a slippery slope. What starts off as infrequent and manageable behavior around credit card spending can take a turn for the worse, quickly. Many Americans rely on credit cards for emergencies and everyday wants and needs. What is hard to conceive is the interest that accrues at a fast rate. With interest rates in the mid-twenties, your small purchases very quickly become large and unruly balances that take time and discipline to pay off and tame. It is also
1. Resolve to pay off balances at the end of the billing cycle.
If you don’t have the cash in your account to pay off the balance, don’t charge it. Not only do you need the cash available to pay the balance, but you also need to actually pay it off every month. It is hard to part with such a large chunk of money when you don’t *have* to. It is easier to make payments, but you need to consider the interest that accrues and also the fact that life happens- maybe you have great intentions of paying off that balance this month, but something comes up. This is how the debt cycle begins. Stay vigilant and pay off your cards every month as a rule.
2. Take advantage of rewards programs.
Make sure you take advantage of any cash back rewards, airline miles, etc that are offered by your issuer. A word of caution, however: don’t charge what you can’t afford to pay off in order to get the “rewards.” You may earn 2% cash back on the purchase, but you will pay 24% interest to receive it in the first place. In these cases, it is not a “reward” but rather a burden.
3. Make all payments on time.
Making payments on time will raise your credit score and
show creditors that you handle debt responsibly. However, late payments and missed payments hit your credit score heavily, impacting your ability to borrow in the future. Use your credit wisely and always make payments on time in order to
4. Keep a reasonable amount of accounts.
Applying for multiple accounts in a relatively short amount of time signals to creditors that you are living above your means and borrowing money to keep up with your lifestyle. When you apply for too much credit in a given time period, your score will be negatively impacted and you may be turned down for credit based on the new accounts or multiple inquiries.
5. Don’t take out loans you don’t need.
Just because you qualify for 0% on new appliances for 18 months doesn’t mean you need that new washer and dryer. Consider your goals and priorities carefully. If your washer and dryer are ugly but work great, you may opt to skip the “great financing deal” and instead put the money you would have been paying into a vacation fund, or your kid’s college savings. Just because you *can* qualify to purchase new items on credit, doesn’t mean it is necessary or you *should*. As with most financial decisions, check in with your gut (and financial advisor) and make decisions with your future in mind, not just your instant gratification and emotions. In 10 years, the older version of you will be thankful when sipping that cocktail beachside- all because you opted to save for retirement in place of paying interest on items you didn’t really need.