• How to Make Credit Cards Work for You, Not Against You

    | Updated on August 23, 2023

    Credit cards as a payment method are the most similar thing to a double-edged sword. According to the Federal Reserve, credit accounts for 74% of all purchases. Regrettably, we’re not nearly as good at repaying them. However, if you want to use credit responsibly, you don’t have to completely abandon credit cards — though it is a good idea if you know you’re prone to misusing them. Instead, develop a few basic practices that will allow you to get the benefits of credit cards while avoiding the risks. To make credit your partner (rather than your nemesis), follow these guidelines:

    Do Not Miss Your Monthly Installments 

    While not overspending is the obvious approach, it is easier said than done. It’s alluring to pay for today’s expenditures with tomorrow’s money because you don’t have to pay credit card fees right away. Then you pay a modest rate of interest one month and then a little more the following. It’s usually these small moves that drag you further into debt.

    Do your best to avoid credit card debt at all costs. That means charging solely what you can manage and clearing your balance in full every month — or even more frequently if it helps you remain on top of things. This may sound difficult, but it is the most important strategy of using credit cards rather than allowing them to use you; it is the only way to prevent going into credit card debt and paying the interest on your transactions. (You really shouldn’t do that: a 20% discount is worthless once you factor in an 18% finance charge.)

    Use Credit Cards to Build Up Your Credit History

    Opting for a credit card may be a good decision for you if you’re new to utilizing a credit or want to improve a comparatively lesser credit history. Secured cards demand a refundable deposit that is typically equal to your available credit and is used as collateral. Unsecured cards don’t demand any kind of security deposit and are only given in accordance with your credit rate. The first type of credit card typically has fewer application criteria than the second. 

    Both sorts of cards’ payment histories are routinely reported to the 3 main consumer credit bureaus. Making on-time and complete payments will help you develop a prudent borrowing pattern and can help you build credit, but late payments can hurt your credit.

    Use Credit Cards to Finance a Purchase

    Credit cards aren’t always the ideal option for funding a purchase because interest rates are often expensive. However, a card with an initial 0% purchase APR can allow you to pay off a large purchase interest-free. This option may be suitable for you if you’re confident you’ll be able to pay off the bill in full before the promotional rate expires. For example, you can use these rewards credit cards as one of the best options to lower the overall price of the items you are paying for as they increase your credit score. Just make sure to read the fine print on any credit card before using it. Some banks are offering deferred interest incentives, which means you could be responsible for all accumulated interest during the introductory period if you don’t pay your debt in full before the deal expires. Other cards may just charge interest on the money remaining, but it can soon add up.

    Use Credit Cards for Traveling Benefits

    Trip Cancellation Insurance — If you have to cancel a trip, most credit cards generally include trip cancellation insurance. If you book your vacation with a credit card and then have to cancel or delay it, you may be eligible for some financial incentives; consult your credit card issuer for details. Automobile Rental Insurance – Many credit cards provide automatic car rented insurance in the event that the rental car is damaged, stolen, or vandalized. To take advantage of the incentives, you have to pay for the rental with your credit card. Find out the specific details of the insurance offered to you by contacting your credit card company.

    Bottom Line

    There are numerous advantages to having a credit card, but there are also some drawbacks. Credit cards can help you build a good credit history, get rewards on ordinary expenditures, pay off high-interest debt, or get interest-free financing if you use them wisely. The key to getting the most out of these perks while keeping a healthy credit card usage pattern is to use them to pay for things you’d buy anyway, pay your bill in full and on time each month, and keep your credit usage low. Rather than succumbing to the credit card trap, defy the trend and manage your credit properly. The benefits and rewards are fantastic, but only if you have the determination and self-discipline to fully utilize them.

    Joseph Williams
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