Many of us who own a credit card understand how convenient they are to use. With that being said, I know you have heard the horror stories that have been coupled with their use. My recommendation is stop fearing your credit card by learning the best way to make it work in your favor.
Understanding Your Credit Card Agreement
We can start off by understanding the terms and conditions of your credit card. These include things like the annual fee, line of credit, annual percentage rate and other specifics which are spelled out in your credit card agreement.
“What’s a credit agreement?” you ask. It comes with your card and generally looks like a booklet printed on paper. Sometimes it’s printed on the back of the paper the card comes attached. It can also be found online at the credit card’s website. Keep it in your files just in case you have a need to refer to it later.
Find out when the pay due date is to ensure you are timely with your payment. Experian recommends paying your balance in full each month. If you can’t, keep your balance as low as possible and no more than 30 percent of your credit limit. This is called Credit Utilization, a factor used in calculating your credit score. Keeping a low, or no, balance does matter for reasons other than payment management.
Advantages to Using Your Cards
An advantage to using your credit card would be fraud and return protection when making online purchases, pay for meals at restaurants, or gasoline purchases.
In addition, some cards offer a rewards program and can offer the customer higher rewards. These rewards can be even higher if you use your credit card for travel purchases. Still manage your repayment to the least amount of time to pay the least amount of interest. When considering making purchases that will not be paid in full by the next month, see if your credit card offers a promotion for zero interest for a stated period of time. When you pay the purchase in full within the promotional period you will have saved money by paying no interest and paid off the purchase price in smaller more manageable increments. This approach makes it affordable when there is the need to make expensive purchases.
Use Caution When Paying with Credit Card
Somethings to be aware of when making credit card purchases involves the state of your finances, and your state of mind. Identify when you can pay your household bills using your credit card for the rewards earned. Caution having the means to pay it off in full at the end of the month, versus not having any other options. This generally signifies a red flag with the state of your finances that should be addressed before getting deeper in debt.
Vendors generally have restrictions in place to protect themselves from the misuse of charging certain items on a credit card. For example, some car dealerships won’t allow you to purchase a car using a credit card. Or, will limit the amount because of the credit card processing fees.
Also, you can’t use your credit card to make a regular payment on another credit card; you are not even afforded the option. Another example is making a student loan payment with your credit card. In this instance, interest would be assessed twice, once from the student loan then again from the credit card. These restrictions are in place for the cardholders benefit as well as the vendor. Be aware of your state of mind when making credit card purchases for retail therapy or a fun night out on the town. Managing this type of spending will help avoid overspending and having your balance spiral out of control.
Contact PFPF for Additional Advice
Put thought into using and managing your credit card purchases as a means to gaining control of your financial health. There is not a need to contribute to the United States $1 trillion credit card debt just because your credit card issuer has provided you with a high line of credit.
What would it feel like to have financial freedom and understanding how to budget the right way? Contact Personal Finance Plus Foundation for help on your financial literacy.