Learn To Use Your Credit Cards Well
Just about all of us use credit cards, but far too many of us don’t use them well. Used well, a credit card is a convenient way to make your purchases. It can save you money through rewards and help you keep track of how and where you are spending. Used poorly a credit card can lead to debt and untold difficulties.
You’ve heard it before, you’ll hear it countless times more because it is the holy grail of using your credit cards well. Pay them off every month.
Definition of not using your credit cards well
If you are carrying a balance on your credit cards, you’ve put yourself into a position where they are taking advantage of you. With accruing interest of 15%, 19%, 22%, credit card debt can easily turn into the worst debt in your life, percentage wise.
If you have poor credit with other debts with lesser interest charges, your priority is to clear through the credit card debt first. Don’t think you should give equal treatment to all your debts. Pay the required amount on all of them and then focus the lions’ share of the money on debts with the highest interest. Most likely a credit card(s).
Some people source out another credit card to pay off an existing debt. Generally that’s just going to compound the problem. However, if you have a good credit score (740 or above) you may be able to find a promotional offer for a credit card with zero percent interest for a year. In that case sourcing another card to pay off your existing debt would work to your advantage.
If you are already paying your credit card off every month, then credit cards are amazing tools that can be used for all sorts of perks and cash back rewards. When choosing your credit card, you will be faced with all kinds of options. Sign up bonuses, travel rewards, rewards on certain types of purchases, cash back, etc.
Before grabbing the first thing that captures your fancy, do a little research. Yes, the travel rewards card seems appealing at first glance but think about it. Will you spend enough to accumulate the points necessary to travel? Is the annual fee worth it? Are there blackout dates? Are there a lot of restrictions? Might a cash back card be a better option? You can always use that cash back for travel after all.
Some cards offer rotating rewards. Buy furniture in January and get double the points. All restaurant transactions get extra rewards in March!! It’s hard to keep track of which purchase you’re supposed to be putting on which card. If you’re up for the challenge, more power to you. Otherwise probably best to just stick with the cash-back card or two you usually use.
Sign up bonuses
Sometimes you will come across a deal where the credit card company offers between $300 - $800 for signing up for their card – provided you spend X amount within the first 90 days. If you are able to pay off your cards every month, then it’s okay to have more than one.
One of the factors that determines your credit score is your utilization rate. Meaning the amount of credit you use compared with your limit. Since you want to be spending less than 50 percent of the amount you can spend on each card, you can spread your purchases over a couple of cards. Nerdwallet is a great source for finding the best credit card offers available at any given time.
If you are signing up for an extra card specifically to take advantage of the sign-up bonus then, once you’ve gotten the deal you’re after, get rid of the card. Don’t let yourself get tempted by the availability of extra money.
Know the benefits of each card
Some people use their Costco card whenever they buy gas because that card can provide 4% cashback on gas. They use their Visa for car rentals because the insurance is free. We are certainty not saying you should have a card for every occasion. What we are saying is, it is okay to have a few cards with different benefits so you can make the most of the benefits of each card.
Cons of using a credit card
Spending on credit is not the same as using cash. At Gold West Financial, we try to say that using a cash-only spending method is best but also challenging. We tend to feel a physical/psychological sort of pain when we use cash because we can tangibly see it leaving our possession. When we use a credit card, that pain is completely invisible. We don’t see the money leave so we don’t feel anything about its departure.
When we use credit cards we tend to overspend. If you cannot control your spending, then you probably are not using your credit cards well and should stick to cash. If you can only manage to pay the minimum or a comparatively insignificant portion of your credit card debt every month, then you are facing an indefinite stint of prolonged debt. You too are better off using cash.
Beat the statement to the punch
At the beginning of the article we said people who use their credit cards well, pay them off every month. Some people go a step further and pay their credit cards off before the statement even shows up or twice a month. If you have online banking it’s easy to do. These are the people who are able to reap all the rewards of a credit card without ever incurring any of the punishments. That’s using them to the best of their ability!
For more helpful articles on saving and repairing credit, check out our other blogs. Gold West Financial is your source for debt resolution solutions -- bad credit OK. Ask us how we can help by giving us a call at (855) 200-0586 or apply online today!