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Using credit cards can be tricky and often gets people in a lot of trouble. Here are some helpful tips on using credit cards wisely. Follow these tips to stay organized and keep yourself out of credit card debt.
1) Have One Major Card
It's easy to accumulate several cards.
Multiple cards make it easier to overspend. How are you going to track spending across multiple cards?
It can also lead to increased costs if each card has an annual fee.
Just keep one card for the majority of your purchases. If you have to, have another one with a higher credit limit as a backup for emergencies.
Take the time to carefully evaluate credit card offers, taking into account benefits, interest rates, and special balance transfer perks.
2) Pay Off Your Credit Card Balance Each Month
Paying off your balance each month is like getting an interest free loan for your money. If you don't carry a balance, you don't pay interest and won't accrue credit card debt.
If had only one tip for the best way to use credit cards, this would be it.
Paying only the minimum payment will take forever to pay off your debt. Only spend on a product or service what you have available to fully cover.
Another benefit is that regularly paying on time builds your credit history and helps you to achieve a good credit score.
3) Don't Use Your Credit Card for Smaller Purchases
Lots of small purchases are difficult to keep track of and add up to larger balances. Spending $20 several times a day with a credit card is easy to do. Instead, use cash for purchases under $100. With cash, you can see the balance decrease, and it's harder to overspend.
Large purchases are easier to keep track of mentally and to approximate your balance. Just don't use a credit card for substantially large purchases, like cars. Remember the previous tip, pay off your balance each month.
I've heard that online poker players are four times as likely as in-person poker players to put too much at risk on a single hand. This makes sense to me. A mountain of chips is much easier to gauge and value than a number on a screen. Similarly, you can visually and materially notice your spending levels when you use cash.
4) Avoid Using Your Credit Card for Cash Advances
When you use your credit card for cash advances, the interest starts right away. You may also incur bank and ATM fees.
The fees and interest can add up to a substantial cost for your cash advance. Use your bank account instead, and if you don't have enough money, then you should think twice about making the purchase.
5) Pay Your Credit Card Bill Early
If your payment is late by even one day, you will be charged a late payment fee. These fees add up quickly. Get into the habit of paying your bill the day the statement arrives, or pay your bill online and save yourself the stamp.
Even if you don't pay it immediately, make sure to pay your bills on time. You typically have a grace period after the due date, but the best practice is to pay as early as possible.
6) Monitor Your Spending
What's to prevent a restaurant employee from adding a 1 in front of your bill? Keep receipts and check the amounts against your statement. Turn on alerts with your credit card, or use Trim, to be notified of larger spending amounts.
Keeping track of your expenditures and monitoring your credit reports can save you from fraudulent charges and identity theft.
7) Avoid Store Cards
Store cards lure you in with promises to save today.
“Save 20% on your purchase today by signing up for an extremely high-interest rate credit card!”
You typically get the pitch just after the cashier has rung up all of your items. They show you that you can save X dollars by using their store card. It's a great incentive to get you to sign up.
The ugly truth is that store cards charge the highest interest rates, and they more than make up for the discount through interest charges.
Avoid this trap and store cards altogether. If you do get a store card, make sure to call and close the account after you pay the bill.
8) Stop Pre-Approved Credit Cards From Arriving
Getting pre-approved credit cards in the mail can be extremely tempting. It's also annoying, bad for the environment, and a potential fraud risk.
Stop them from arriving in the mail by visiting OptOutPrescreen or by calling 1-888-5-OPTOUT (1-888-567-8688). You can opt-out for five years or even permanently.
9) Cancel Cards the Right Way
If you decide to get rid of a credit card, don't just cut up the card.
Destroying the card prevents you from using it to spend, but it doesn't close your account.
Make sure that you call the issuer to cancel your line of credit. You will most likely suffer through 30 minutes of elevator hold music and passionate representative pleas to get you to stay, but remain firm in your decision.
10) Confess, Apologize, and Ask a Favor
If you have a late payment, call the credit card company.
Confess that you made a mistake, apologize for your mistake, and then ask them if they will remove the charge. You will be surprised at how often they agree to reduce your bill. I wish that I had used this strategy when I made money mistakes.
Creditors only want you to pay your bills. If you apologize and show that you are serious, they will typically try to work with you.
Smart Credit Card Use
It's incredibly easy to get into trouble with credit cards. If you struggle with using them, then don't. It is possible to live without them.
But if you choose to use credit cards, please use them responsibly.