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When you’re just starting out financially, it can be tempting to apply for new credit cards, despite having poor or no credit, in order to boost your spending capacity. If fact, many people who are far enough past just starting out that they should know better find themselves coping with bad credit stemming from excessive or improper credit card usage. However, if you use your credit cards with care, not only can you avoid creating burdensome debt, but you can also improve your credit rating, enhancing your eligibility for mortgages and loans at good rates, if you need them in the future, as many do to purchase homes or start businesses.
While the ability to have it now, rather than saving up, is awfully tempting in our consumer culture, unless it is something really essential, it is rarely a good idea. Once you sit down and figure out the real cost of buying merchandise using a credit card and carrying forward the balance – which is the cost of the item and the amount you’ll pay in interest – you’ll see that it costs significantly more to buy that way. Doing the math before making the purchase may be just what you need to reconsider, to think about saving up instead of carrying a balance.
It is far better to consider your credit cards to be for emergencies or real necessities. And, no, a high-definition television or the ultimate stereo system are not essential. It is much better to have room on your credit card for repairing your vehicle if something should go wrong unexpectedly. For everyday shopping trips, many leave their credit cards at home unless there is a specifically planned purchase to be made, finding that to help in avoiding to make unnecessary purchases.
When you do use your credit cards to make purchases, you have an excellent opportunity to improve your credit history. By making your payments on time, you demonstrate your credit worthiness. Some experts do recommend the making of a few credit purchases that will be paid for over time for exactly that reason, saying that if you don’t use the credit you have, you leave no paper trail of good behavior. This point of view does have merit, but the concept of necessity, practicality and durability should still apply to such purchases.
For average use, though, credit cards should be used according to your budget. You best bet is to avoid carrying a balance, which means you should control your credit card spending the same way you’d control your cash. Often, the feel of a credit card is as if it is not real money. That feeling makes it easy to spend too much, as the payment is put off. The wise credit card user never forgets that credit cards are, in fact, real money and that carrying a balance means you’re spending more of it.
Using credit cards wisely and resisting the buy now and pay later temptation will protect your future credit opportunities, but it will also enhance your present quality of life. you’ll appreciate not having the stress of the burden of unnecessary credit card debt much more than the fairly fleeting satisfactions of material objects that you still owe a significant amount of money for.
Tips for Proper Credit Card Usage
Charge only what you can reasonably pay off in a few months
Don’t allow your credit card balance to grow out of control. If you must use your card for a big-ticket item, make sure you will have the resources to pay off this purchase within a few months. By keeping your balance in check, you will save on interest and finance charges and reduce the risk of getting into financial trouble.
Keep track of how much you’re charging each month
If you regularly pull out your plastic to pay for dry cleaning, buy the newspaper, pick up lunch, and pay for groceries, you probably don’t realize how much of your paycheck is going toward incidental charges you could pay for in cash. You may be surprised when your statement shows a large balance composed mainly of nickel and dime charges. Keep track of your purchases and avoid paying interest on purchases you could have made just as easily with pocket change.
Would you buy it if you had to pay cash?
Using a credit card is convenient, and sometimes too convenient. Before you make any unplanned purchase, ask yourself whether you would still buy the item if you had to pull cash out of your wallet instead of plastic. Often, the thrill of “buy now, pay later” makes us more likely to buy things we don’t really need.
Pay the highest interest rate card first
If you carry more than one credit card, your cards probably have different interest rates. If you’re carrying a balance on all your cards, you should generally make the greatest effort to pay off the card with the highest interest rate. If the balance on the higher rate card is large enough, it may even make sense to use a card with a lower interest rate to make payments on the higher interest card. Once the high-interest card is paid off, you should close the account so that it is removed from your credit record.
Pay more than the minimum payment on your account
If you ever want to see a “zero” balance on your statement, you must make more than the minimum payment each month on your credit card bills. Card companies have gradually lowered the size of the minimum payment to about 2 percent of your balance. They aren’t doing you any favors by asking you for less money each month. Instead, it can take years to pay off your balance, even if you never add to your original debt. By increasing your monthly payment even a little, you can eliminate debt more quickly and save yourself a lot of interest.
If you have extra money, pay off your card balance
Use any windfall cash to pay off your outstanding balance. Unless you’re sure that the after-tax return on your potential investment will be more than the interest rate on your credit card, you’ll be further ahead by paying off your credit card debt than by investing the unexpected cash. Stocks may go up or down, but interest payments on credit cards grow and grow.
Refuse the offer to skip a month’s payment
Credit card companies sometimes offer to let you take a month’s vacation from their bill. Often these offers come during the holiday season, as a way to encourage you to spend the “extra” dollars on additional gifts. You’re not really getting something for nothing, though. The card company continues to charge interest on your balance, which will not be reduced by your regular monthly payment and may even increase if you use the card during this no-payment month.
Keep a credit limit high enough for emergencies but avoid impulse buying
If your muffler falls off in Tennessee and your bank is in Boston, the mechanic may not be willing to accept an out-of-state check to repair your exhaust system. However, your credit card would be happily accepted if your credit limit is high enough to cover the cost of the repairs. It is important to keep a credit limit high enough to cover unexpected expenses, but don’t be tempted into using this available credit for impulse purchases.
Use a travel card only if you can pay the balance in full monthly
If you’re going to carry a travel card, you must understand how it works. You might think a travel card is more prestigious than a standard credit card, but travel cards often demand a high annual fee, and payment in full is due at the end of the month. If you pay only a portion of your balance, the travel company may give you a month or two to catch up. But if you still haven’t paid in full at the end of this time, they’ll cancel your card, and this action will likely appear on your credit report.