The average American has more than 3 credit cards.
Credit cards are a great tool for financial growth. But they can be abused or misused, leading to spirals of debt and bad financial management. It doesn’t have to be this way.
Read on to learn how to use a credit card the right way.
Regularly using a credit card will help to boost your credit rating. It proves that you can be trusted to pay back what you have borrowed and don’t live too far outside of your means.
But to make the most of a credit card, you need to be disciplined. It is tempting to treat yourself to something you want now and to pay it off later. But doing so will only cost you more in the long run. Just as you don’t want to take out a loan to treat yourself, the same should not be done with a credit card.
Don’t start too big. Stick to one credit card so you can keep on top of your payments. Try and resist the new credit card offers your bank and card provider offer you, at least at the start.
Set self-imposed limits on your spending, even if your credit provider keeps increasing your credit limit.
Pay on Time
Always make sure to pay your credit card bill on time. Every year, credit card holders in the USA spend over $100 billion on interest and fees. By paying in full you can avoid these charges.
If you are a disorganized person, it will be worth setting up a direct debit to pay off the minimum charge each month. While it won’t avoid interest, this will make sure you are never hit with late fees.
If you have already built up more than you can pay off on your credit card, then you should consider a card with a lower interest rate. You can transfer your current balance onto the new card, and enjoy the lower rate. Make sure to close the old card so you don’t get charged for it.
Make the Most of Rewards
Credit cards aren’t only about building your credit. They can earn you money for nothing!
Reward credit cards give you cashback or other rewards every time you use your card. Cashback effectively gives you a discount on everything you buy!
This may sound too good to be true, but as long as you are sensible there is no downside. No matter how tempting, make sure that you don’t spend more than you can afford to pay off at the end of the month.
Even one month’s interest will be more than the rewards you earn on your purchases.
It is easy to fall into the trap of chasing rewards – buying items to get the money off, or going up a reward tier. Stay sensible and you can make reward cards work for you.
How to Use a Credit Card the Smart Way
Remember, the smart way to use a credit card is to make purchases that you have the cash to pay for. This means there is no risk to your finances and will let you pay off your balance each month to build credit without incurring any fees or interest. Not only will this build your credit, but it will also help you with your money management
Now you know how to use a credit card the smart way, check out our tips on choosing the best credit card reward programs.
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