Credit cards can be a bit scary especially if you’ve never had one before. There are many different myths about credit cards that may be intimidating.
Understanding your credit cards is the best way to keep credit card debt under control.
Keep reading for seven tips on understanding credit cards and how you can borrow responsibly.
1. Pay Back As Much As Possible
If you can pay your entire balance every month, then this would be your best option for having no credit card debt. Try to not spend more than you can afford every month. Even if you have a high credit limit you don’t want to go overboard with your expenses.
By paying off your balance every month you avoid having any interest added. This means you could use it as a normal account by buying the things you need and paying off the entire balance every billing cycle.
Sometimes it isn’t always possible to pay the entire balance. If you’re not able to pay your entire balance every billing, then you will want to find a credit card with a low-interest rate.
You will save more money if you pay off more of your balance at a time. This will help to keep the interest you’re accruing low and help you pay off the entire balance quicker.
Also if you want to keep your debt on your credit card low, then you should never miss a payment. If you’re only able to pay the minimum amount then do it. Not paying the minimum amount can create more fees for you and negatively impact your credit score.
2. Budgeting Tool
If you’re able to handle your money well and aren’t worried about not paying your full balance every billing cycle, then you could use a credit card as a budgeting tool. You can put all of your monthly expenses onto your credit card and then you will see exactly how much you’re spending.
Make sure you’re confident that you won’t go over budget if you plan to do this. Going over budget and not being able to pay off the entire monthly balance could create more debt for you.
One important tip is you want to do this is to never spend more money on your credit card than you have in your bank account. This will help to keep you accountable when it comes around to paying the bill for the month.
3. Credit Cards Can Help Your Bad Credit
You may be thinking that if you have bad credit, then you can never great a credit card. But that isn’t the case!
There are many credit cards for bad credit that can actually help you. Companies are willing to work with people who have bad credit.
Another reason you may be hesitant to get a credit card if you have bad credit is that they will require a large deposit. But there are also several companies that do not require a deposit to get one.
If you do decide to get a credit card to help your bad credit, then remember to never miss a payment. You want to show credit card companies that you can keep up on payments. This will really help your credit score.
4. Get a Credit Card With Good Rewards
When using your credit card correctly you can actually make hundreds of dollars a year from rewards. Many credit cards offer rewards programs where you can earn cash, airline miles, or retail points just by using it like normal.
If you have a credit card that offers a cash reward, then using that credit card for all of your purchases can actually make you money each month. By doing this you need to make sure you’re paying off your entire balance each month. Don’t spend more than you can afford.
But be extremely careful when it comes to trying to get rewards. You don’t just want to buy frivolous things that you may not need or can’t afford just because of the rewards. Getting the cashback isn’t really worth it if you have to make more in interest.
Some people think that just because they’re getting rewards then the spending is okay but if you really can’t afford it, then don’t do it. In the long run, you don’t want your credit card to be counterproductive.
5. Stay Under 30%
Regardless if you have a high or low credit limit on your credit card you will want to only utilize about 30% of it. This 30% goes for all of your credit cards combined.
This will help to keep your credit score healthy. It shows that you use your credit cards but do not rely too heavily on them.
6. Only Use Your Card For Needs
Getting a credit card may make you feel like you can buy anything you want but you should only use your credit card for things you need. Spending on things you can’t necessarily afford will lead to more and more debt. Not paying off your entire monthly balance will create interest making what you buy cost more money in the long run.
You can use your credit card in emergency situations such as a bill you didn’t budget for. But think of this as a loan to yourself. Pay your credit card off as soon as you get the money.
None the less, you should be using your credit card on things that you can afford. Do not spend money that you don’t have when using your credit card.
7. Applying for Credit Cards
You may think that getting credit cards is a great idea but remember not to apply for too many credit cards in a short amount of time. Lenders may think you’re a greater risk if you’ve applied for 6 credit cards in one year which will not make you look good.
Applying for a can put a hard inquiry on your credit score which will negatively impact it especially if you’re applying for multiple credit cards in a short amount of time. Plus having more credit cards then you can afford is a really bad idea and can create a lot of debt for you.
Make sure you do plenty of research before deciding on which credit card you want to apply for. By doing the right research before applying, you can almost figure out if you will be accepted or not for a specific credit card.
Understanding Credit Cards Helps
If you know how to use a credit card, then it can actually really benefit you in the long run. Make sure you spend wisely and never spend more money than you have.
Understanding credit cards is a big help for you and your credit score. If you want more helpful tips on credit cards or money, then check out our other blog posts all about finance.