Opening a new credit card account should be done with caution. It is okay to own more than one credit card. In fact, the average American owns more than 2 credit cards at a time. There is nothing wrong with that as long as you are sure that every card is being utilized properly. If not, then you will just be wasting money on that card.
Sometimes, these credit cards are offered during the check out process. It is offered with immediate discounts that can be applied to current purchases. If you are given a discount on the items you are about to buy, the appeal of signing up for the new card can be very high. It is not surprising if a lot of people would want to get that card.
While that may have helped you get a discount on that particular purchase, getting that new credit card account may not be a smart move. This is especially true if you have no plans of buying from that store regularly. You will just be keeping that card and paying for the annual fees and charges.
Before you open a new account, it is important for you to get to know the credit card thoroughly so you can determine if it will really be beneficial for you to use it. Having a lot of credit cards may be convenient, but it can also be financially destructive. If it does not have a real purpose, you might end up being careless with its use. That carelessness can lead to a lot of debts that can compromise your financial future and security.
3 times it is okay to open a new credit card account
While having a lot of cards is not really advised, there are instances when it is smart to open a new credit card account. Here are three important reasons you might want to consider.
When you need a lower interest rate
Reports reveal that the average credit card interest rate has risen by 4 percent in the last five years. Do you know how much that will cost credit card holders? It will cost $122 billion! That is a lot of money to waste on interest rates. Credit cards are really notorious for their high interest rates. While it is very convenient to use a credit card for purchases, not to mention safer, it does not mean you should not do something about the interest rate.
One thing that you can do is to open a new credit card account with a lower interest rate and transfer the balance of your other cards to it. This will help you save a lot of money. You can start using this card for purchases instead. That way, you can minimize the interest that you will pay on your balance.
When your lifestyle can help collect rewards
Rewards and loyalty programs is another reason to open a new credit card account. It is actually one of the factors that consumers look into when choosing a credit card. It can help you save money – as long a the rewards compliment your lifestyle. So if there is a change in your lifestyle that will suddenly allow you to benefit from a specific reward, then it makes sense to get a new card that will help you get it.
For instance, you just got promoted into a job that makes you travel all the time, getting a new credit card account with travel rewards makes a lot of sense. You can use the travel rewards on something else – helping you save a lot of money in the long run.
In the same way, you should also opt for a new credit card in case your old rewards card no longer applies to your new lifestyle. At least, make sure that the new lifestyle is not expected to change for a long time.
When you are trying to be frugal
It might seem like a contradiction. Why would you get a new credit card account if you are trying to live a frugal life? When you have a credit card, it is more enticing to make purchases. But if that card can help you get cash-back rewards, it makes sense to open a new card. Despite its reputation, credit cards can help you save a lot of money while you are making your usual purchases. As long as you are conscious of what you are using the card for and you really claim the cash-back rewards, this can help you be successful in applying a frugal lifestyle.
How to use a new credit card account properly
While your reason to open a new credit card account may be valid, that does not mean you should do it irresponsibly. Debt does not happen because you opened a new account. It happens because you were reckless with how you use the card.
When young individuals get a new credit card, this is their chance to build a good credit reputation. You have to understand that this will take time to do. You cannot accomplish this overnight. To be successful, you need to consistently make good decisions about your credit card purchases. You have to make sure that your credit history will only reflect good payment behavior and smart credit choices.
Here are tips that will guide you on how to use a credit card properly.
Get the right credit card
In order to use a credit card properly, you need to own the right one first. Otherwise, you might end up paying for charges that you are not benefitting from or you could be passing up on rewards that will help save money. You need to consider the specific qualities of the card. Almost 7 out of 10 Millennials prefer credit cards that can offer big rewards. You should do the same. You will really benefit – as long as the card is really something that you use for typical purchases. It will help you get something extra for buying the things that you usually buy anyway.
Include it in the budget
The best way to be smart with your new credit account is to include it in your budget plan. That means giving it a specific amount to spend. For instance, you can allocate a budget of $200 each month that means that is the amount that you are allowed to charge on your card. If you reach that amount, you stop using it. This will protect you from overspending on credit card purchases.
Use it with a purpose
If you want to use your new credit card account properly, you should also use it with a purpose. Before you apply for it, make sure that it will have a purpose in your finances. For instance, a travel rewards card will only be used for traveling or booking flights. If you will not use it for traveling because you hardly do it anyway, then you should not open the account. Your credit card can also be used to pay for your monthly groceries. If the card has cash-back rewards, you can save a bit from your usual expenses.
Pay the balance in full
If you budget your credit card spending, you can pay the balance in full at the end of the month. Once the billing statement comes, you will have the funds that will help you pay for your balance in full. This will help you avoid credit card debt and the finance charges associated with carrying over a balance to the next billing cycle. At the same time, consistently using the card will allow you to give your credit score a boost. It is a win-win situation for you.