Credit cards have many real advantages. The key is knowing how to use a credit card wisely. They can save time for shoppers, offer the flexibility we sometimes need to make larger than average purchases, and eliminate the risks associated with carrying large amounts of cash.
A virtual necessity in today’s consumer economy, credit cards are used when it comes to airline tickets, reserved seats for a “must see” football game, or good seats for a concert. Unless you have the time to stand in line at an understaffed ticket window, the cash in your pocket won’t help you at all. Additionally, the inexpensive seats for the flight you wanted, or the best seats for the game or concert may be long gone by the time you get to an actual ticket window. Credit cards are also a necessity for purchasing books, movies, or any of the other things many of us regularly buy online.
Unfortunately, they also provide an easy route to financial difficulties for people who are undisciplined in their use, or simply choose the wrong cards.
How to Use a Credit Card Wisely: The First Step Is to Select the Right Card
- Interest payments on unpaid monthly balances vary widely between cards. All other things being equal, look for the card with the lowest long term rates.
- Avoid cards that offer very low interest rates for the first six months as an inducement to sign up. After the six-month period is up, the interest rate on unpaid monthly balances automatically increases, sometimes to very high levels. By the end of the six months, many credit card users have accumulate balances that are too high to pay off each month, especially if they have transferred balances from other cards to take advantage of the initially low rates. Those balances will suddenly become very expensive. With some cards offering a low initial interest rate, the initial rate escalates before the end of the six month period if the card holder is late with a single payment.
- Late payment fees also vary widely from credit card credit card. Not being able to make a payment on time because of an unforeseen emergency is bad enough, but being slammed with an excessively high late payment fee makes things even worse.
- Another important factor to consider if you want to use your credit card wisely is the presence or absence of an annual fee. Many excellent credit cards are available without annual fees, so take the time to find one.
- Perhaps the best way to use credit cards wisely is to select a credit card issued by your local bank. Some local banks offer cards that can be used either as credit cards or debit cards. Such cards may offer free use of the bank’s ATM machines. In some cases those credit/debit cards are serviced locally, making resolution of billing errors and other problems much easier. If at all possible, choose a card serviced by your local bank, especially if it provides free ATM access.
A Few Simple Rules about How to Use Your Credit Card Wisely
As useful as they can be, failure to use credit cards wisely gets many users into serious financial difficulty. The cards generally do not come with an understandable set of instructions for how to use them wisely. The first step is to choose your credit card (or cards) wisely as described above. Then make up for the lack of instructions for safe use, post these rules in a prominent location where you pay your bills:
- Always make credit card payments on time, and make sure you know what the exact “payment due date” is for each month. This is especially important if you are paying your credit card bills by mail. Send your payment well ahead of the due date
- Set aside a place to drop off all of the credit card receipts you may have acquired during the day.
- Keep those receipts at least until you have checked each monthly credit card statement for charges you didn’t incur other errors.
- To use a credit card wisely it is important to watch carefully for notices of interest rate changes, credit limits, or other terms of the credit card agreement. These may be buried among the advertisements that often accompany monthly statements, or arrive in the mail as another of those innocuous looking “non- bills”, that we too often consign to the trash without reading.
- Another key way to use a credit card wisely is to keep credit card balances low, paying them off entirely at the end of each month when possible. Maintaining a pristine payment record may position you to request an increase in your credit level, or a lower interest rate.
- Avoid opening more credit card accounts than you need, but having several credit cards with low balances relative to their credit limits looks better on your credit report than a single card that hovers near its credit limit.
- If you do choose to sign up for an additional credit card, it is best to keep the old accounts open and active.
Final Thoughts on How to Use a Credit Card Wisely
Life happens. Even after selecting the best available credit card and following the rules for using a credit card wisely listed above as closely as possible, events such as the loss of a job or a serious illness can result in spiraling balances.
If your credit card debt is becoming a burden for any reason, seek professional help from a reputable non-profit credit counseling service. Choose one that has been around for a while. These organizations offer a wide range of services, but the earlier you contact them the easier it will be for them to help you.