We simply love using credit cards. They provide us with the financial freedom to buy whatever we like, whenever we like without worrying much about paying for them. Hence, credit card has earned a reputation of one of the most preferred financial products when it comes to handling a financial crunch. If this wasn’t good enough, credit cards offer reward programs that not only help you save money but also give you access to a better lifestyle.
However, despite the many benefits, this open line of credit can be dangerously seductive; one wrong move, and it can easily lead you to financial doom. Therefore, it is extremely important that you understand the dos and don’ts when using credit cards and cultivate the knack of using this excellent tool wisely, to your advantage. In this article, we list the smart tips for using credit cards to get more value from them:
1. Keep your credit utilization ratio low
Ideally, the balance on your credit card should be less than 50% of your credit limit. Carrying high balances on all your credit cards (more than 50% of your total credit card limit) can adversely affect your credit score. Also, if these high balances are carried over from one month to another, your interest outgo also increases. So, try to keep your credit utilization ratio as low as possible.
2. Make credit card bill payments on time
As simple as this tip may sound, yet many people ignore it. Credit cards charge a high-interest rate on outstanding balances. If you do not pay off your balance on time, the interest piles up and your payment amount increases. And if you happen to default or miss a payment, you not only have to bear the penalty, it also hampers your credit score.
So, if you don’t want your interest outflow to increase and credit score to dip, pay your bills on time. Set a reminder, mark the date on your calendar or simply set up automatic payments.
3. Pay more than the minimum
Making minimum payments on your credit cards is not sufficient. To avoid the heavy interest rates, paying the outstanding balance in full is the right way to go about it. But, if you can’t pay in full, at least make it a point to pay more than the minimum due.
4. Avoid withdrawing money using your credit card at an ATM
Yes, credit cards give you the facility to withdraw cash from ATMs. But should you do it? Absolutely no. Why? Because ATM withdrawals using a credit card attract heavy charges as soon as you make the transaction (with no grace period), which you wouldn’t want to pay. So, don’t treat your credit card as your bank account and stay away from cash advances or withdrawals.
5. Pay off high-interest credit cards first
Credit card debt because of its high-interest rates is bad debt. You need to get rid of it as soon as possible. But, you have to approach this debt problem strategically. Create a plan and time frame to stay on track. Make a list of all your debts. Get rid of your high-interest rate debt first while you continue paying the minimum dues on your other debt.
6. Carefully scrutinize the promotional offers
Credit card companies lure customers (existing as well as new) with promotional offers. While these offers may seem beneficial, you make sure that you understand the terms thoroughly so that you don’t fall into the trap of buying something that you don’t need, just because it was on offer.
7. Be aware of the joining and renewal fees
Most credit cards have joining and renewing fees. Pay close attention to the fee structure and only choose the card whose fees are reasonable in comparison to the benefits it offers. Some credit cards initiate a fee reversal if you spend over a certain annual limit. This reversal benefit can save you money on annual fees.
8. Use your credit card for big-ticket items only
It’s so easy to shop with a credit card that most people get into the habit of making small purchases on them. These small purchases if left unchecked, can add up over time to take a life of their own. If you want to avoid the surprise of how small purchases can accumulate into thousands, consider using your credit card only for big purchases.
9. Make the most of your rewards
Credit cards offer joining benefits or reward programs. These benefits or rewards can be in the form of gift vouchers, free access to airport lounges, etc. Use your card in such a manner that you get the maximum out from it. Accumulate your reward points to redeem it in cash or kind. That said, a free plane ticket bought by redeeming your reward points isn’t worth carrying thousands of debt for years to come. If you want to benefit from the rewards, ensure that you pay your outstanding in full. If you can’t, it’s better to just stick to a low-interest credit card.
10. Immediately report lost or missing credit card
If your credit card is missing, lost, or stolen, report it immediately. Credit card companies use the chip in credit cards to mitigate risk. If you don’t report your card missing, stolen or lost, and it was used to make transactions, you can be on the hook for the charges even though they were not done by you.
The benefits, perks and rewards of using a credit card are amazing, but only if you have the willpower and self-discipline to truly take advantage of it. The above tips for using credit cards wisely will help you in managing your money better with credit cards while getting the most out of them.
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