Credit cards can be useful financial tools when used properly. They offer convenience, help build credit, and often come with rewards and perks. However, when used recklessly, they can lead to financial trouble and create a cycle of debt that is difficult to break.
Discover our tips on how to use your credit card with minimal risk.
Stick to a budget:
Before making any purchase with your credit card, always have a budget in mind. Know how much you can afford to spend and stick to it. Don’t fall into the trap of making purchases that you cannot afford, thinking you will pay for them later. That’s how people get trapped into high-interest debt that’s difficult to pay off. (For insights on how to create financial goals that you’ll actually stick to, CLICK HERE.)
Always Pay on Time:
Making your payments on time is another way to use credit cards wisely. Late payments can lead to high fees and lower your credit score. It can also lead to higher interest rates in the future. Set up automatic payments or reminders so that you never miss a payment.
Don’t Max Out Your Credit Card:
Keeping a balance on your credit card isn’t a bad thing if you can pay it off quickly, but maxing out your card can lead to big financial mistakes. Maxing out your credit card not only affects your credit score, but it also creates a cycle of debt that can be challenging to break. So, always try to stay below your credit limit.
Keep Your Credit Utilization Rate Low:
The percentage of the credit limit you use is called the credit utilization rate. A high utilization rate negatively affects your score, so always try to keep it below 30%. The lower your rate, the better your score.
Monitor Your Credit Report:
Keeping a watch on your credit report is essential because it can give you an idea of where you stand in terms of credit score. Many credit cards offer free credit reports, check them often and track your spending habits. Look for any errors or fraudulent activities on the report and report them immediately.
Don’t Use Credit Cards for Cash Advances:
Cash advances come with high fees and interest rates that accrue immediately. Avoid using credit cards for cash advances unless it is an emergency. Instead, use your debit card or personal savings. (To learn more about why cash advances on credit cards can be costly, CLICK HERE.)
Choose Credit Cards with Low Fees and Interest Rates:
Before applying for a credit card, research the card’s fees, interest rates and rewards programs. Be sure you’re getting a good deal for the money you spend. Choosing a card with low or no annual fees, a low-interest rate, and cashback or other incentives is wise.
Avoid Opening Too Many Credit Cards:
Applying for multiple credit cards at once negatively affects your credit score, as it signals that you may be taking on too much debt. Take on only what you can handle, and only apply when it is necessary.
Be Wary of Balance Transfers:
Balance transfers appear to be a better deal because they offer a lower interest rate than your current balance. While it can save you money, it’s essential to read the fine print and check for any fees that may be associated with the transfer.
Don’t Use Credit Cards for Living Expenses:
Never use credit cards for everyday expenses like groceries or gas. It is easy to forget those minor purchases, which can add up to a big bill at the end of the month. Always use cash or debit for those kinds of purchases. (For top ways to break free from bad money habits, CLICK HERE.)
Remember, maintaining good credit is essential for future financial health, so it’s crucial to use credit cards responsibly.
Written by: Franklin Russell
Franklin Russell is a seasoned financial advisor, specializing in investment management in the greater San Diego area in California. With a career spanning over a decade, he has helped numerous clients achieve their financial goals. Outside of work, Franklin indulges in a variety of outdoor activities, from watching college and professional football to playing golf, hiking, camping, boating, and biking.
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