As you transition into independent adulthood, gaining financial wisdom— like understanding how to effectively use credit cards— is crucial. Credit cards can be a valuable financial tool, helping you build your credit score. A good credit score is imperative for securing loans for significant purchases such as a home or car, or for renting an apartment. Additionally, credit cards can offer a means to earn rewards, making necessary acquisitions more affordable through cash backs or facilitating a much-needed vacation through travel rewards.
However, overuse or misuse of credit cards is not unheard of. In fact, it’s often through recklessness that cardholders find themselves buried under unmanageable debts. Trust me, I’ve been there! Just a few years ago, I resolved to tackle my credit card debts and educate myself to be financially prudent. I’ve resumed using credit cards as part of my financial planning but now, I use them judiciously, in a controlled manner until I regain my trust in self-regulation.
We all should learn from the stories of others and adopt these 8 smart strategies for credit card use:
1. CHOOSE YOUR CARD WISELY: Rewards on using credit cards are an enticing feature. However, if your lifestyle doesn’t involve regular travel, then accumulating flight or other travel rewards wouldn’t be the most beneficial for you. Opt for a card that provides cash back. Importantly, remember rewards should never be the sole purpose of excessive spending.
2. CONTROL THE NUMBER OF ACCOUNTS YOU HAVE: It’s always more manageable to have fewer credit accounts. While some might resort to “credit card churning” for maximizing rewards and benefits, it’s not feasible for everyone – myself included. When people open many accounts, they are more likely to spiral into financial troubles.
3. READ THE TERMS CAREFULLY: It’s important to read the fine print when opening a credit card account. Understanding all potential fees and interest charges upfront helps avoid undesired cost surprises.
4. BE PUNCTUAL WITH PAYMENTS: Clarity is key, and it applies to your payment deadlines too. A late payment can affect your credit score, surge your interest rates, and result in late fees.
5. CLEAR YOUR BILL: Ideally, paying the full amount is the best practice. If you merely pay the minimum, you’re only lengthening your debt period due to the accruing rate of interest.
6. SET PAYMENT PRIORITIES: Those with multiple cards should prioritize payments based on each card’s interest rate, starting with the highest.
7. STAY WITHIN LIMITS: A credit limit should not be equated with an invitation to make expenditures. Overspending harms your credit score.
8. REGULARLY CHECK YOUR PURCHASES: Always scrutinize your statements and receipts to avoid being unfairly charged.
Credit cards don’t have to be bad news. If handled tactfully, they can help build great credit scores and potentially reward you with an exciting vacation. Can you share your credit card usage tips? What are your typical credit card purchases? Do you already follow any of these tips?
