Thanks to the rise of credit card usage, it has been easier than ever to fall into debt. In fact, 55% of Americans who have credit cards also have credit card debt. A big reason for this is because of how easy it is to use a credit card.
When you swipe your card or type the numbers into your computer to purchase something, you are detached from the actual transaction.
You’re not actually handing any money over so, psychologically speaking, you don’t feel the purchase as much. People are often willing to pay more for the same product when using credit than when using cash, according to Psychology Today.
With all that said, credit cards can bring a lot of benefits to people’s lives. They shouldn’t be viewed as good or bad. Instead, the best credit card is a tool that, when used properly, can actually make you richer instead of poorer.
Interested in learning more? Continue reading and we will through all of the credit card best practices in 2019.
Pay Your Bills on Time
When people think about how they could end up in debt, they usually assume it would be because they charge more than they can afford.
Though that is one way, it is not the only way to end up owing too much. When you fail to pay your bills on time, you become subject to late fees, poor credit scores, and continuous interest payments.
A late fee is when your card issuer charges you because your payment was not received by the due date. Many cards have tiered late fees. That means the cost of the fee goes up if the late payment is for charges totaling higher than a certain amount.
It is helpful to know that, by law, a card issuer cannot charge a late fee that is higher than the amount due. So if you are late on a $15 payment, your late fee cannot exceed $15. Because of this, most issuers have a minimum payment of $25 or more.
The best way to avoid late fees is to pay at least the minimum payment by the time it is due. Be aware that even if you make the payment by the due date but after the due time, you can still be charged a late fee.
Poor Credit Score
Your credit score essentially shows how much of a credit risk you are. By not paying your bills on time, your score will go down. This can affect you being approved for loans and establishing new lines of credit.
Your payment history is the most important factor when determining your credit scores. Other ways that your score can be lowered are by changing credit cards and by having a debt-to-limit ratio that exceeds 50%.
Those with bad credit do have available options luckily, such as installment loans.
An interest payment is basically the price that you must pay for borrowing money.
If you have poor or fair credit then you will likely have to pay a higher interest rate to obtain a credit card. So every time that you carry a balance on your card, you will have to pay more than somebody who has a good credit score.
Before you sign up for a credit card, make sure that you know the interest rate and understand if it is fixed or variable. And if you are late on your interest payment, you could become subject to an even higher interest rate.
Pay Your Balance in Full
The best way to avoid the problems listed above is to not only pay your balance on time but also in full every month. If that is not possible for you, then you want to pay as much of the balance as possible. Otherwise, you will have to pay interest on your remaining balance.
Try to avoid paying only the minimum payment required. With that said, it is still much more preferable to pay only the minimum as opposed to not making any payment at all. When you only pay the minimum though, it will take you much longer to pay down your debt.
A good rule of thumb to get out of debt quicker is to pay double your minimum requirement. You can pay off your debt exponentially faster by doing this.
It is important to note here that while you are attempting to pay off old debt, you must absolutely try to not acquire new debt. This will complicate your finances and add to your financial woes.
Only Buy Things That You Can Afford
There’s an old Saturday Night Live sketch where a couple is looking over their credit card statements, unsure how they are going to get out of debt. A debt relief salesman then comes in with a pitch to save the financially distressed couple. He tries to give them a one-page pamphlet titled “Don’t buy stuff you cannot afford.”
The couple is baffled by this advice that they spend the next four minutes trying to wrap their heads around it. As obvious as it might seem, many Americans, unfortunately, make charges with their credit cards that they know they cannot afford. This is one of the fastest ways to spiral into debt.
It is often recommended that you should never charge something to your credit card that you currently could not pay with cash from your bank account. Credit card debt is accumulated slowly over time due to these seemingly minor indiscretions.
When you charge only for things that you can afford, you will be able to pay your balance in full every month, not be subject to interest payments, and steer clear of debt.
One way you can ensure you’ll only use the card for what you can afford is by looking at the best secured credit cards. As you are required to put down the money when you open the card, you won’t be spending money you don’t have.
Don’t Close Old Credit Cards
Perhaps you want a card that will reward you with more miles. You might decide to close an old card and sign up for a new one. But not so fast.
Closing your oldest credit card could end up hurting your credit score. The longer you use the same card, the better it is for your credit. This is because you have a long credit history thanks to that card. In fact, the length of your credit history makes up about 15% of your credit score.
By closing that card, your credit history will shorten and your score is likely to lower. Instead, if you don’t want to have that card anymore, one of the best credit card practices 2019 you can do is use that card intermittently and always pay it off in full.
You will also be raising your credit utilization ratio by closing a card. This refers to how much debt you have in relation to your various lines of credit. If you have multiple credit cards, and you then close one, now the amount of money you can borrow has lowered yet the amount of debt you have remains the same.
If you want to close a card, the best thing you can do is pay off all of the balances on all of your lines of credit. This is especially helpful in terms of the credit utilization ratio. Increasing your credit limit on your remaining cards can also help.
With all this said, it is important to note that your credit card history remains a part of your score for 10 years after the card is closed.
Check Your Monthly Statement
By checking your monthly statement, you can stay on top of your budget, watch out for any fraud that might have occurred, and keep a low balance. Even if you have it on automatic payment, it is still helpful to review your statement each month.
Each time you go over your statement, check to ensure that all of the purchases were made by you. Banks have technology meant to detect fraud but they are not completely accurate.
Understanding Credit Card Best Practices in 2019
Owning a credit card comes with a great deal of responsibility.
From making consistent payments to keeping your budget in check, you need to have a watchful eye and make sure you don’t charge too much or miss a payment. But by following these credit card best practices in 2019, you should be able to establish a good line of credit and borrow money responsibly.
It is good to know that there a variety of credit card types out there. The next time you are searching for one, make sure you pick the type of credit card that is best for you.
Here are some articles from our blog so you can learn more.
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The 4 Best Business Credit Cards on the Market
What are the Best Credit Cards for 18 Year Olds?