Credit cards are a convenient tool for making purchases, but they can also be a double-edged sword. If used responsibly, they can help you build credit and earn rewards, but if used improperly, they can lead to debt and financial trouble. In this beginner’s guide, we’ll explore how to use credit cards properly and avoid the common pitfalls.
Choose the right card: Before you even start using a credit card, it’s important to choose the right one. Look for a card with low or no annual fees and a low interest rate. If you plan on carrying a balance, a low interest rate will save you money in the long run.
Create a budget: Credit cards can make it easy to overspend and accumulate debt. To avoid this, create a budget that includes your credit card purchases. Only spend what you can afford to pay back in full each month.
Pay on time: Late payments can result in fees and damage your credit score. Set up automatic payments or reminders to ensure you never miss a payment.
Pay in full: Paying off your balance in full each month is the best way to avoid interest charges and stay out of debt. If you can’t pay in full, pay as much as you can and try to pay off the rest as quickly as possible.
Don’t use your card for cash advances: Cash advances often come with high fees and interest rates, so it’s best to avoid using your credit card for them.
Monitor your account: Regularly check your account statements for errors or fraudulent charges. If you notice anything suspicious, report it to your credit card company immediately.
Use rewards wisely: Credit card rewards can be a great way to earn cash back or points, but only if you use them wisely. Don’t overspend just to earn rewards and always redeem them before they expire.
Here are some examples for each of the points in the article I generated on how to use a credit card properly:
Choose the right card:
For example, if you are someone who frequently travels, you may want to consider getting a credit card that offers travel rewards and benefits such as no foreign transaction fees, airline lounge access, or hotel discounts. On the other hand, if you are someone who carries a balance, you may want to choose a credit card with a low interest rate or a balance transfer offer to save money on interest charges.
Create a budget:
Let’s say you have a credit card with a $1,000 limit. To avoid overspending and accumulating debt, you can create a monthly budget that includes your credit card purchases. For instance, you can set a limit of $300 for your credit card spending and make sure to pay off the balance in full each month.
Pay on time:
If your credit card payment is due on the 15th of each month, make sure to pay it on or before the due date to avoid late fees and a negative impact on your credit score. For instance, you can set up automatic payments from your checking account to your credit card to ensure timely payments.
Pay in full:
Let’s say you charged $500 on your credit card for a new TV. To avoid paying interest charges, you can pay off the full balance of $500 by the due date. If you can’t pay the full balance, you can make a larger payment than the minimum required to reduce the amount of interest you’ll have to pay.
Don’t use your card for cash advances:
Let’s say you need cash for an emergency. Instead of using your credit card for a cash advance, which typically comes with high fees and interest rates, you can consider other options such as borrowing from a friend or family member, using a personal loan, or using a line of credit.
Monitor your account:
Regularly check your credit card statements for errors or unauthorized charges. If you notice anything suspicious, such as a purchase you didn’t make, contact your credit card issuer immediately to report the fraudulent activity and dispute the charge.
Use rewards wisely:
If your credit card offers rewards such as cash back, points, or miles, make sure to use them wisely. For example, you can redeem your rewards for statement credits, gift cards, or travel bookings. Just make sure to use them before they expire and don’t overspend just to earn rewards.