Using a credit card responsibly isn’t always easy, and most schools don’t teach you how to manage your debt. Considering that 41 percent of Americans had credit card liabilities accounting for more than $1 trillion in revolving debt as of early 2019, your family members and friends might not be the best sources of advice either.
Fortunately, these tips are designed to help. If you’re using a credit card, then keeping these pointers in mind might make it easier to stay out of trouble.
Pay in Full and on Time
You can skirt interest charges by paying your whole balance when it’s due. Scheduling payments so that they process a few days before the due date is the smartest way to keep ahead and avoid getting wiped out by fees that build up like a snowball rolling down a mountain.
Use the on/off Switch
Many providers offer a feature that lets you temporarily disable your credit card via an online portal. While too much non-use might result in extra charges, periodically shutting your card off may be a good option for slowing down your spending and adjusting your habits.
Limit Your Card Usage
You shouldn’t use credit for every purchase you make. Limiting your credit card usage to transactions that you know you can comfortably repay is an easy way to avoid situations where your balance gets out of control.
Don’t think restricting yourself will work? Consider the fact that banks limit your daily spending and transaction sizes based on your credit history and standing — If they let consumers spend as much as they wanted, severe debt problems would probably be way more rampant than they already are.
Applying the same idea to yourself with stricter boundaries is a sound way to practice self-control. Some financial experts advise that you should only ever spend 30 percent of your credit limit, but even this may be too much if you know you have a history of poor financial management skills.
Limit the Number of Cards You Use
Having more than one credit card gets you into the habit of simply switching to another payment method when you’ve already exceeded safe spending limits on your first one. Also, the more open card accounts you own, the harder it is to keep track of your activity.
Don’t fool yourself into thinking that you’re going to magically rebuild your credit score by successfully managing piles of revolving card debt against all the odds. Having too many cards can lower your score, and reporting agencies haven’t yet revealed what the magic number is, so it’s probably smartest to err on the side of caution.
Save for Your Bill
Using a credit card lets you increase your consumer spending power by accessing funds you don’t currently have, but that doesn’t mean you should act like your card is a magic money machine. If you spend money with credit, then you need to save at least that much plus interest so that you’ll be able to pay the bill at the end of the month. In other words, it’s best to offset your credit usage by cutting back an equivalent amount of expenditures in other areas.
Be Careful About Paying Bills with Credit
Should you use your credit card to pay your water, electric, cable or other monthly bills? It depends on your circumstances. Some advantages may include being able to
- Avoid dealing with checks,
- Automate bill payments so that you don’t forget,
- Build up credit with cards you only rarely use,
- Track your expenditures more easily,
- Leverage Federally mandated consumer protections, and
- Earn points, travel miles, and other rewards.
On the other hand, there are definitely situations when you shouldn’t pay bills using credit. For instance, many utility companies that let you do this also require that you cough up an extra percentage fee for the privilege. If you’re trying to obtain a loan or get out from under a heap of debt, then adding credit accounts might put you in more dire straits. Also, remember that many of the bills you can use a credit card for are cheaper when you pay with ACH, direct transfers and other alternatives.
Using credit cards to pay off other credit cards is almost always a bad idea, and the fact that card companies try to prevent you from doing so means that you’ll likely end up spending more on cash advance fees and other workarounds. If you find yourself in this situation, it’s probably time to consolidate your debt and rethink your spending habits.
Understand Your Terms
Credit card agreements aren’t particularly interesting reading material, but it’s essential that you know what they mean. For instance, cards with 0 percent interest rates usually don’t offer such terms permanently, and minor fees that you didn’t know about can quickly add up. Even activities like withdrawing from the ATM tend to carry higher interest penalties. Taking the time to read your contract also increases the likelihood that you’ll be able to capitalize on perks.
Seek Cards with Consumer Protections
What happens if your credit card gets stolen? Although many card companies will accommodate you when you need to reverse charges or dispute fraudulent transactions, credit unions that include more protections from the start can make your life a lot less stressful.
You might still be held responsible for fraudulent transactions if you don’t notice the card theft promptly — Should such activity go hidden until your bill comes, then you’ll get a bad mark on your credit history. Debating purchase activity once it gets to this point is a lot more of a hassle than catching problems early, so try to find a card company that proactively works to keep you safe. Card companies that offer thorough consumer protections may also be more likely to take your side when you dispute charges placed by vendors.
Better Credit Cards
Not all credit card products offer the same terms and features. While some perks, such as getting cash back, are just icing on the cake, others, like your annual percentage rate, or APR, decide how much extra interest you’ll pay for not resolving your balance on time.
Other features are functional enough to make a huge difference in your financial outlook. For instance, cards that ease the process of checking up on your account history and keeping track of your balance are easier to manage responsibly. Credit unions with comprehensive online portals can make it way simpler to stay on top of your revolving debt.
There’s no federal law restricting how much interest your credit card processor can charge, but some financial institutions are better about maintaining fair terms regarding APR interest and transaction fees. By researching the options thoroughly, you stand to reduce the overall cost of using credit.
Implement a Smarter Credit Card Usage Plan
The way you use a credit card has a huge impact on your credit score — Whether you someday need a loan or want to open a business, being smart now will have major benefits down the line. Learn more about how having the right credit card might benefit you by talking to one of our experts at Crane Credit Union.