Using a credit card for purchases can be scary sometimes. Just imagine all the things you can buy with a mere piece of plastic and all the ways you can overspend. Uncontrolled credit card use can put you at risk of getting into unaffordable debts.
However, don’t overlook the benefits because of this, a wise consumer would utilise cash-backs and other rewards from credit cards that save you money in the long term.
If you have in-depth knowledge about how credit cards work, they will work for you!
Credit Cards For Dummies
In essence, using a credit card is like borrowing a 30-day loan for each of your transactions. An interest rate is incurred on your outstanding balance if you do not pay off your bill in full each month.
The maximum amount of money that can be transacted over your credit card each month depends on your credit limit which is pre-set for the credit card you applied for.
Certain credit cards require you to pay an annual fee and most credit cards have a minimum spend each month for the cardholder to avoid deactivation of the credit card. As such, it is important to check thoroughly with your issuer for any charges, fees, and interests that may be imposed on your credit card.
With that out of the way, let’s discuss what you can do to reap the benefits of using a credit card.
Do Not Hold Too Many Credit Cards
The initial concern that arises when you hold too many credit cards is the likelihood of you overspending.
While you may not be spending with all your cards, financial institutions might look at your record and assume you have a spending problem. Worse still, it may tempt you into actually overspending and accumulating debts!
This will impact your credit score and harm your chances of getting a loan.
Always, Always Pay Your Credit Card Bill On Time
To maintain a healthy credit score, pay your credit card bills on time, or at least the minimum payment on your credit account. Late payments often result in heavy penalties, high interest rates, and charges that damage your personal finance and impacts your cash flow for months to come.
In addition to financial penalties, your bills might be sold off to debt collection agencies who may not be too friendly with you.
Never Carry An Outstanding Balance
Although minimum payments are sufficient to keep away penalties and scary debt collectors, you should always fully pay off your balance every cycle when possible.
Not only does it keep your credit usage low, it also won’t incur an interest. Carrying an outstanding balance means you end up paying much more than you should for your transactions.
Credit cards should not be utilised as a long-term credit option because the interests are extremely steep compared to other financing options.
Always be wary of any outstanding balance on your account to avoid overpaying.
Use Your Credit Card As If It Is A Debit Card
The best way to use your credit card is to use it like a debit card – remember after you clear your debts, your credit card spending will be reflected by the amount you have in your checking account.
This way, you can be more mindful of your purchases and not overspend your credit. A good way to start this habit is to monitor your credit card and checking account balances regularly to ensure you don’t spend more than you can repay.
Pay off your credit card bills regularly – instead of doing a monthly payment, try paying it off weekly or once every two weeks to avoid carrying balances.
By effective management of your credit cards, you ensure you are not overpaying your issuer unnecessary interests and enjoy all the benefits of using a credit card.
Keep Your Credit Card Accounts Active
One of the key features of using a credit card is the calculation of your credit history through your credit account, which will be reflected in your credit score.
The longer your credit history, the better your credit score will be, provided you are a responsible user, and a good credit score makes it easier for you to get larger sum loans.
Hence, keep your credit card accounts active by using them and fulfilling the minimum spend each month to avoid account closure.
Redeem Your Rewards! (You Deserve it)
Most credit cards award you an average of 1% to 2% cashback or rebate on your purchases, some even go up to 10%. The rebates or cashback (usually in the form of points and miles depending on your card’s type) are redeemable for various gifts, cash, merchandise, and even vacation packages.
Conduct small research on the rewards your issuer provides and find out what’s best value for you. Do not let your rebates go to waste!
Understand The Benefits of Different Credit Cards
Most credit cards on the market currently are associated with a variety of benefits such as consumer protection, extended warranty, credit score report, rental car insurance, and even access to premium airport lounges depending on your card type.
Different cards come attached with different sets of benefits. You should take some time to go through the benefits of various card types.
It helps you to understand which set of benefits are the most useful to you and your lifestyle as it can save you heaps of money over the lifetime of your credit card.
The Bottom Line?
With proper utilisation, credit cards can act as your universal voucher booklet chock-full of savings and benefits that can also be used as a payment method.
On the contrary, if used incorrectly, credit cards can land you in a world of severe debt and irreparable credit scores, resulting in you working for your credit card, not the other way around.
In short, don’t use your credit card if you’re drunk.