Credit cards bring lots of questions. Is there a right way to use credit cards? Is there a wrong way? How to use Credit cards? There are so many ways credit cards get abused and misused. I think that credit is like a lot of other hot topics. It’s not good or bad, it’s how you use it. While having a credit card is ok, (I have a couple) it’s more about using them wisely. Here are some tips/rules I have used for when people ask me “How to use credit cards wisely”. As always everyones situation is different and what has worked for me is my personal situation, it may not be the best situation for you. Always consult a professional and exercise caution.
Use only when needed
Credit cards get a bad rap. Often it’s for good reason. Too many people get these cards with huge lines of credit and then proceed to spend like there is no tomorrow. If you have done this in the past, it’s ok. Make a vow from here on out to start using a credit card wisely. The first thing is to only use it when needed, otherwise use cash.
Cash is still King
If you can’t handle the responsibility then don’t do it. That should be rule number 1 when thinking of getting a credit card. If you can’t keep yourself from spending, then don’t give yourself the temptation. Pure and simple.
Only buy what you can pay for today
This is pretty simple and straightforward. It’s the advice my dear old dad gave me when I got my first credit card before taking off to Europe when I was 18. He told me “Son, only use it when you need it. Always pay it off and never carry a balance. Because if you do, you will wreck your life for years to come.”
This advice has stuck in my head since then. To this day I still use a credit card like it was a debit card, and I’ve never carried a balance. Thanks Dad.
Never carry a balance
This one is pretty obvious. If you are carrying a credit card balance it’s a sure way to start drowning in debt. If you are carrying a balance, one of two things has happened.
1) You got carried away with your spending. At this point, cut up your card and get back to proper money habits.
2) Some unforeseen even has happened and you have been forced to spend. In that case find a way to pay it off and get rid of it.
Minimum Payments are NOT OK
Did you know if you only make minimum payments you will be paying back your cards for literally decades. I took a look at my last statement. If I make minimum payments my groceries and other monthly bills will literally cost us double and will take me nearly 20 years to pay off. That’s a lot of wasted money
Check the Rate
If you are going to need a balance, or carry a balance, I will tell you right away. DON’T GET A CREDIT CARD. The interest you will pay is absurd. Many have low rates. But those rates are actually only low when they are compared to the 19% to 22% that the other cards charge. If you need money look into a line of credit or another low interest loan. A credit card is not your solution
Don’t have a huge limit amount on your card
Here’s the thing. Banks want you to have as big of a limit as possible. They know that if it’s there, it’s a pretty good chance that you are going to use it. Or at least more likely to use it. This will get you into trouble. Stay strong and keep a lower limit. The only way around this would be if you have had cards your whole life and never carried a balance and consider yourself to be a smart spender.
Avoid annual fees
This one I’m actually guilty of. We use a premium cash back rewards card. We pay around 100 a year for the privilege and in return we get 4% back on Gas and Groceries. 2% back on recurring payments and 1% back on everything else. I’ve done the math for our situation and this makes the most sense. There are a few perks, but the nicest thing is we get the cash-back bonus in November which is great to help along with the Christmas gifts.
If you are going to use a card get something back for it
The last thing you need to consider if you are getting a credit card is that you should get something back for using it. Companies pay big bucks to get you using their cards. My rule is make sure it’s something I will use. Whether it’s cash back, travel rewards, car make sure it’s actually a reward you will use. Also be wise, don’t spend to get more rewards, that’s a fools errand I don’t want anyone to go on.
Did I miss anything? Leave a comment below and let me know your tips on how to use a credit card wisely.