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Do You Use Your Credit Card Correctly?

by Mike

Are You Misusing Your Credit Card?

Federal Reserve figures show that total amount of revolving debt in the United States currently stands at over $850 billion and around 98 per cent of this is credit card debt.

And although credit card debt is currently at its lowest level for seven years, it appears that this is due to lenders writing off debt rather than borrowers paying it off.

So, of the estimated 150 million credit card holders that currently live in the US, how many of these actually know how to use their credit card correctly?

This may be hard to quantify as everyone has different needs and ways of using their card but if you feel that you may not be getting the most out of your credit card then read on to find out how best to use your plastic.

The first thing to consider is that you must be responsible with your card.

This means that you mustn’t overspend on your card as spending more than you can afford to pay back at the end of the month means that you are likely to incur interest fees that will increase the level of debt that you are in.

In addition, make sure that you never spend more than your agreed credit limit as you will be charged a penalty fee that will also add to your debt.

You then need to consider the ways in which you use your card and it is vital that you do not use it as an emergency fund. If you are caught short for cash one of the easiest things to do is take out your credit card and worry how you’ll meet the payment at a later date. But doing this can throw any budget plan way off course and should be avoided at all costs.

Furthermore, you should try to avoid credit card cash advances wherever possible as they start to accrue interest immediately and, in many cases, this will be at a higher rate of interest than the rate the card gives you on purchase and balance transfers. In addition, you will most likely be charged for drawing money on the credit card which could be a flat rate or a percentage of the amount you have withdrawn.

Once you know how to use your credit card correctly and responsibly, it’s time to start making the card work for you!

Many people are of the opinion that you shouldn’t use your credit card for everyday purchases, which is sound advice if you are not going to keep track of your daily outgoings as the debt will soon add up.

If done correctly though, using your card for everyday items such a fuel and grocery shopping means that you can keep your money in your bank account for longer and take advantage of the banks paying you interest on this.

The best way to ensure that you do this successfully is to keep a record of everything you spend, keeping receipts is the simplest way to do this, and make sure that you pay off the balance in full at the end of each month.

There is no point in doing this if you feel that you don’t have the discipline to stick to it as credit card interest rates are way above anything that the banks are likely to give you in interest on the money in your account.

Using your credit card regularly also helps to build your credit history and improve your credit rating which, in turn, will get you better deals in the future which could lead to lower rates of interest and interest-free periods that can last up to 18 months.

In addition, if you compare credit cards on websites such as Moneysupermarket then you will find that some credit cards will offer cash back, air miles or reward points that can be used to redeem luxury items. So by using your card regularly you can quickly benefit from these reward schemes.

The most important piece of advice though is that you must pay off your balance in full at the end of each month.

It is also worth considering that, if you have tried and failed with credit cards in the past, then they may simply not be for you and it may be wise to steer clear of them altogether.  Furthermore, it might also be a good idea to seek credit repair services to help mitigate the damage done.

On the other hand, if you feel that you can adhere to the tips outlined above then credit cards can be a great way to make your money go further.

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{ 5 comments… read them below or add one }

Ravi Gupta

Great advice! I use my Amazon Visa everwhere I go because of the points I accrue from spending. I do all my tracking via a spreadsheet so I always know where I stand. Several times I’ve been able to redeem a $50 statement voucher to lower my balance and all for spending money that had to be spent.
There are definitely ways to save via your card, it requires a person to be smart and responsible.

-Ravi Gupta
Ravi Gupta´s last [type] ..There has to be a better way

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Edwin @ Cash The Checks

I use my credit card the right way, I use it to collect rewards points and then pay it off each month.
Edwin @ Cash The Checks´s last [type] ..Recent Posts From My Blog Network

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krantcents

I have always used credit cards responsibly. My wife attributes our success to discipline. Personally, I think I hate paying high interest rates so much, which I think it keeps me on the straight and narrow. Savings is my number one priority and live on what is left helps!
krantcents´s last [type] ..The Problem with Health Care is You!

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Title Loans

I’ve always been apprehensive about using my credit cards for anything other than for emergencies. I’ve run into the problem of not being able to pay off the debt, and scared to get there again. However, using them for small items like gas and groceries seem doable since they’re smaller amounts. Thanks for the tips Mike!

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optionsdude

These are good ideas. I don’t think that you should avoid using a credit card. Using it for gas to take advantage of rewards makes perfect sense since you will unlikely purchase more gas using credit vs cash.
optionsdude´s last [type] ..Ignoring Market Noise When Trading

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