Credit cards can be an immense boon when you hit a really rough patch financially, giving you much needed breathing space when you need your cash for pressing expenses like rent, groceries or gas. That being said, credit cards can quickly go from being a great financial safety net to something that gives you immense grief later if you don’t use them wisely.
Below you will find 10 credit cards usage rules. Rules that if you follow prudently will allow you to reap the benefits that credit cards have to offer, without having to deal with the headaches that they can otherwise bring. Here are our tips for using credit cards wisely.
1. Don’t sign up for every credit card that comes your way!
If you already own one credit card or if you have a decent credit score, chances are that you will inevitably receive pre-approved credit card offers in the mail. This, however, doesn’t mean that you have to sign up for each one of those offers.
First, see if you need another credit card at all. If you really do, take half an hour to read through the various invitations you have received to see which new card could give you the best benefits. The important factors that you must consider are APR%, annual fees, introductory 0% interest periods, late payment fees, the credit limit, and any add-on card fees.
Remember, signing up for many credit cards is not only a way to unnecessarily increase your creditor base, it is also a potential way to negatively affect your credit score.
2. Keep your card’s outstanding balance at $0, as much as you can
When you use your credit card, you know that your credit card company gives you a few days of interest-free grace. If you pay off your balances during this period, you won’t be paying any interest charges, while also having the ability to rotate your cash for a few days.
However, this will only happen if you pay off your balances. Let the outstanding balance accrue for just one month and you will quickly start to rack up high interest charges.
3. Avoid the dreaded minimum payment habit
One of the worst pitfalls that lead to succumbing to the perils of a credit card is when you only make minimum monthly payments. If you spent $2,000 on your credit card, your credit card statement is going to instruct you to pay only 2% of your outstanding balance as minimum payment, a payment which works out to $40.
Now, if that credit card charges you a 20% APR, a monthly interest charge of 1.6% is going to apply on the $1,960 that you will have pending, assuming that you just paid off the minimum payment. 1.6% of $1,960 is $32.
In other words, even though you think you have paid off $40 from your balance, you have essentially paid just $8 ($40 less $32) off your total balance.
If you keep up this trend, you will actually end up paying $8,960, over 30 years, to eventually pay off the $2,000 that you borrowed from your credit card company!
Quite shocking, isn’t it? This is why it is very important that you do your math right when planning your credit card repayment schedule.
4. Never, Ever Miss a Payment Deadline
One of the cardinal rules of intelligent credit card use is to pay on time, every time. Though a lot of people intend to pay off their credit cards on time, many just forget.
Missing your deadline by a couple of days might not seem like that much of a big deal to you, but credit companies will be very quick to levy late fees and even possibly increase your APR%, especially if you have been late on more than one occasion.
If you have many credit cards and have a hard time keeping track of all the deadlines, it makes a lot of sense to keep a monthly alarm on your phone or calendar for each of your credit card deadlines, to make sure that you are never late.
5. Check and double check your statement
It is not uncommon for credit card statements to have erroneous transactions. Sometimes, a purchase could have been billed twice on your credit card and you will never find out unless you physically inspect your credit card statement.
Moreover, if you use your credit card for recurring payments, especially for online facilitated services, you can quickly forget what charges accrue on your credit card statement every month.
Taking a monthly look at your credit card statement will allow you to stay on top of your expenses and also help you quickly investigate purchases or charges that might have been added to your account.
6. Report lost or misused credit cards immediately
If you ever misplace your credit card or receive a text that shows that an unknown transaction has been debited to your credit card, it is imperative that you immediately call your credit card company to block the credit card.
When your credit card ends up in the wrong hands, your hard earned credit can get used up in just a few seconds. Though you will have the opportunity to prove that your credit card was used fraudulently, it will without a doubt be a long, frustrating and arduous process that you can easily do without.
7. Never withdraw cash from your credit card
If your credit card’s high APR% wasn’t bad enough, you are going to be in for a rude shock when you find out more about how much your credit card company is going to charge you when you do a cash advance on your credit card.
First off, you are going to be charged 2% to 4% of your withdrawal amount as a cash advance fee. Next, you are going to be charged an ATM fee, about $5. Then, on top of all of this, you are going to pay an interest rate that is much higher than your usual APR%. Lastly, you don’t get an interest-free grace period on your credit card cash advances.
8. Don’t charge your card just to earn rewards
Free airline miles, car rentals or redeemable points at various stores can sound like exciting incentives to use your credit card. You might think that it is one way for you to actually make the credit card company pay you for a change, right? Wrong!
The fact of the matter is that the odds are always in favor of the credit card companies. They know that you have to spend a significant amount of money on credit cards to earn a reasonable amount of points that you can then use like spending money. They also know that you will invariably falter when it comes to keeping your outstanding balance at $0.
When they get the chance to accrue interest on your credit card, the interest you pay on your credit card is easily going to be more than the rewards you are eligible for, thereby giving you a financial expense instead of a gain.
9. Negotiate and bargain with your credit card company
Have you been a good credit card customer over the years, paying off your balances and keeping balances low? If yes, you deserve to be rewarded with lower interest rates. All you have to do is ask for it. Call your credit card company’s customer service line and ask for an account manager.
Once you get on the line with them, ask them for a revision of your APR%, citing that you deserve to be charged less for having been an ideal customer. You will be surprised to know that such revisions are often carried out by credit card companies. They will however rarely do it on their own though.
Pick up that phone and ask for it. You can also ask for late payment fees to be reversed when you make that rare late payment.
10. Call in advance if you are having trouble paying off your credit card
If times are tough and you just don’t see how you are going to feasibly pay off your credit card in the coming months, it might be prudent to make a proactive call to your credit card company, explaining your difficult financial situation.
When you do this, they will work with you on an alternative repayment plan. Besides getting slightly relaxed repayment terms and more time to pay off your credit card, you will also reduce the chances of your credit score being negatively affected the moment you miss or delay a payment.
Featured photo credit: Credit Card Volcano by Wilkins Gallo De Oro via flickr.com