Credit cards can be used to help improve your financial position. A lot of people have painted it in a bad light because of the high-interest rate. Not only that, the convenience of its use makes it very easy for us to abuse its use. When combined, it can quickly lead anyone into a debt crisis. This is why you need to be careful when you are choosing a new credit card. You have to understand what you are getting yourself into.
If you want to make a smart decision, you should always get all the facts. That is the only way that you can look at all your options and determine if your course of action is the right one or not. The same is true for credit cards. You have to make sure that you know the important facts about it so you can understand how to use it properly and more importantly, to your advantage.
Need to know to use your credit card wisely
With the number of people using credit cards, it is surprising to find out that a lot of them have not been educated about it. In fact, almost 50% of consumers admitted they never received instructions on how to use credit cards wisely.
This is a scary statistic because it is hard to be smart about something if you do not understand how to use it in the first place. Here are some of the important things that you need to know about credit cards so you can make a smart decision about it.
Credit card types
Start by getting to know the different type of credit cards that you can choose from.
- Standard credit cards are those that do not offer any reward or benefit. Since this card practically does not offer anything, it could be offered with a low annual fee.
- Rewards credit cards are those that offer freebies in the form of miles, points, and cash back. This is meant to encourage consumers to keep on using their cards.
- Balance transfer credit cards are those that will allow you to transfer the balance of your other credit card accounts – usually those with a high-interest. This will help you enjoy a low-interest or even a zero-interest rate for a specific period. You will be required to pay a balance transfer fee that is usually a percentage of what you will transfer.
- Low-interest rate credit cards are those offered with a low rate – usually for introductory purposes. This is to entice consumers to apply for the new card. This can also be used for balance transfers.
- Retail credit cards are specific to a retail store. These are usually offered to encourage loyalty among patrons and make them come back to spend each time.
- Premium credit cards are the cards that offer higher perks and rewards. Although that may be attractive, it should be known that these also have high annual fees.
- Student credit cards are those offered specifically to college students currently enrolled. Chances are, these are first-time credit card users.
Credit card fees
Did you know that only 39% of credit card owners know their interest rate? If you want to use credit cards wisely, you need to get to know the different fees that might be included in your billing statement. This will help you figure out how you can save every time you use your credit cards. Here are the different fees that you need to pay.
- Annual fee. This is a fee that is charged once a year. This is usually waived for the first year to attract new credit card applications. If the card gives high rewards, there is a high chance that this fee will be high as well.
- Finance charge. This is the interest that will be added to your balance if you fail to pay it in full on the due date.
- Late fee. This is the amount that will be charged to you if you do not pay at least the minimum payment requirement on or before the due date.
- Balance transfer fee. This is a fee that you need to pay if you decide to transfer the balance of your other credit cards to a new one. This is usually a percentage of the amount that will be transferred.
- Cash advance fee. This fee is charged to your balance if you withdraw cash using your credit card. It is a percentage of the amount that you got as the advance.
- Foreign transaction fee. This is the fee charged to the credit card if you use it in another country. Sometimes, this can be waived but that would depend on the type of credit card that you used. This is usually a percentage of the amount that was charged on the foreign purchase.
Credit card transactions
Finally, if you want to learn how to use credit cards wisely, you need to get to know the different transactions that you can use it for. Obviously, it can be used for purchases. But apart from that, there are other uses for your credit cards.
- Balance transfer. If you have a lot of high-interest credit cards and all of them are carrying a balance, you might want to transfer them to a card that has a lower interest rate. This will help you save money on your payments. It will also consolidate your multiple debts and make it easier for you to manage your payments. But to make this really beneficial, you have to work around the promo period of the balance transfer card. These cards are usually offered with a low-interest rate for a specific period. You need to increase your monthly payments and pay off the debt before the low-interest rate promo of the card. After that period, the high-interest will kick in and can cost you more than what you were originally paying.
- Cash advance. This is another credit card transaction that you can use. Sometimes, if you are short on cash, you can use your credit card like an ATM. This is usually what people do if they need the emergency money. While this is convenient, it can be very expensive. According to reports, these cash advances usually charge 25% to 30% APR. That can be a very big amount and will make you waste a lot of money on the interest rate.
Consider these three important facts before you use credit cards or open new accounts.
Using a credit card wisely
If you really want to improve your financial situation, you do not have to stop using your credit cards. In fact, you need to continue using it – just make sure that you learn how to use it properly. There are actually three ways for you to use your card wisely.
Used to build up credit
First of all, you can use it to build up credit. In order to have or maintain a good credit score, you need to keep in using credit. However, you need to make sure that you know how to pay that credit back. That is how you can improve your credit score.
Used for emergencies
Another way to use your credit card is for emergencies. Admittedly, this is not something that people should solely rely on. You still need to have a cash set aside for your emergency fund. However, your credit card can give you additional security. Once that cash fund is depleted, you can use the card. But you have to remember two things. First is this has to be your last resort. Secondly, you need to make sure you have a plan to pay back the balance of your card after the emergency.
Used for rewards
Finally, you can be smart with your credit cards if you learn how to use the rewards properly. This is why it is very important to find the right type of credit card to use. If you always travel, you might want to get a credit card that offers travel perks or miles. This is something that you can use to make future travels cheaper.
As long as you learn how to use your credit cards wisely, you will learn how it can increase your net worth. By learning all the important facts about it, you will pave the way for a stress-free credit card use. You will realize just how helpful it can be – as long as you understand the responsibilities that are tied to owning and using the card.