A credit card has a lot of benefits, but you have to use it the right way. Misusing it is the easiest way to get into a debt trap.
In this article, we’ll discuss a few wise ways to enjoy the benefits of credit cards without experiencing the dangerous downsides:
1. Never carry a balance
This tactic is the holy grail of using credit cards. When you pay your balance in full every month on time, you will never have to pay a penny in fees or interest. It’s practically free loan from your bank from the time of purchase to the due date for that payment cycle.
To ensure that you are able to make full payment on your credit card, you need to monitor your expenses. Log in frequently to ensure that you are not spending more than you can afford.
2. Never pay your bill late
In addition to paying your balance in full, ensure that you make timely payments. The benefits of paying on time are that you get to keep your interest outflow low, boost your credit score and build a healthy credit profile over time.
If you are late in paying, your credit card provider charges an ugly late payment fee. And that’s not all. Late payments mess up your credit history badly, making it challenging for you to get credit in the future.
Set a reminder on your phone to make payments on time. Setting up an automatic deduction on a certain date of the month to make the payment directly from your transactional account is a good idea.
3. Have a plan when you can’t pay in full
While paying in full and paying on time is crucial, there may be some months due to unexpected expenses, paying the full balance may not be possible. During those months, ensure that you make arrangements to at least make the minimum amount due and don’t increase your balance by making more credit card charges. It’s a good idea to put away your credit card until you can afford to pay off what you owe.
4. Never use your card for small expenses
A lot of people get into credit card debt when they use the card to pay for small purchases, which if left unchecked, takes on a life of their own over time. If you don’t want to pile up debt, use your credit card for big purchases only.
The best way to use the card for big purchases is to first save up for your purchase in cash. Make the purchase using your credit card. Reap in the reward points. And pay the credit card balance in full with the cash you had saved.
5. Take advantage of all the rewards you can
People who gain the most from using credit cards are the people who have mastered the art of credit card rewards. Credit cards offer a wide range of benefits – cashback, frequent flyer miles, hotel loyalty points, etc. for making big and small purchases.
But the rewards loses its charm when you have to pay a lot in interest for carrying the balance on your card. If you really want to enjoy the benefits, make sure you pay the balance in full every month. If you don’t, those rewards are not worth the debt you build up and the interest you pay.
6. Never withdraw cash using your credit card
Although credit card can be used to withdraw cash at the ATM, it is really really a bad idea. Your cash withdrawal attracts charges as soon as you make the transaction. You are charged a cash withdrawal fee, and you are not given any grace period to repay the amount borrowed.