If you want to learn how to use credit cards wisely, there are a couple of rules that you need to learn. These are the important rules that will keep you from making mistakes that can lead towards credit card debt. Even smart spenders can make mistakes but the chances will be lower if you make it a habit to follow the rules.
According to recent statistics, consumers have steadily gained confidence in using their credit cards for various purchases. Since last year, credit card use has grown by 2.3%. Experts believe that this financial confidence is a good sign for the economy. After all, we live in a consumerist society. We need to spend in order for us to get the things we need to survive. Sometimes, when our cash falls short, we take out our credit card to pay for what we need. But is that really enough reason to use our cards? Is it what you can classify as a way to use credit cards wisely?
The truth is, as long as you can afford to pay your balance in full when the billing statement comes, it is okay to use your credit card. But if you are unsure about where to get the payment for your credit card purchase, you might want to rethink your expenses. According to the same source, the credit card delinquency rate is rising. That means people are using their credit cards but they are also struggling to pay it back. This can be a huge problem especially if you continue to use your cards even if you know you are unable to pay it back immediately.
5 rules that will make you a smart credit card user
According to report, despite the growth in job opportunities, consumers are starting to struggle with their finances. This is probably because the job opportunities do not necessarily mean there is an increase in income. If the income is not growing, you might want to learn how to manage your finances wisely. Obviously, this includes learning how to use your credit cards properly.
Fortunately for you, there are a couple of rules that you can follow in order to use credit cards wisely. While these rules are quite simple, following them will take a certain amount of self-control, discipline, and determination. You might be forced to break a couple of bad habits along the way in order to succeed.
Here are the 5 rules that you need to follow if you want to be smart with your credit cards.
Rule 1: Choose your credit card carefully
Start by learning how to choose your credit card carefully. There are a couple of options for you to choose from. But before you make a choice, try to understand your spending preferences and habits. You need to think about how you will use your credit card. Will it be for travel purposes? If your business requires you to travel a lot, you need to look for a credit card with travel rewards. If you intend to use it to buy basic necessities like food and groceries, you might want to check if the grocery near you offers a store credit card.
Once you have made your choice, make sure you try to understand all the details about it. What is the interest rate? How much is the credit limit? Does it have annual fees? What are the different charges that you need to be aware of? These details will help you understand how this credit card should be used.
Rule 2: Keep your balance under 30% of your limit
With the consumer debt reaching $4 trillion as of 2018, we need to be careful about taking in more debt. You can spend as much as the credit limit but that is not the right way to use credit cards wisely. If you want to maintain a good credit score, you need to keep your balance within 30% of your credit limit. That means if you have a $10,000 limit, you should only have up to $3,000 in your balance. Do not use your card until you have paid off that amount. Keeping it below 30% of the limit will help you keep your finances under control. In case you need to use it for a big purchase, do not use your card again until you have paid your balance to be below $3,000.
Rule 3: Practice self-control by sticking to your budget
Another rule that you need to consider is to always practice self-control when you are using your card. The best way to do this is to stick to your budget. Most people think of their credit cards as an extension of their wallet. This mentality will quickly drown you in debt. You need to include your credit card purchases in your budget. This is one way to ensure that you have the cash to pay back what you owe. If you plan to use your card for groceries and you have a budget of $500 each week, then that is your limit. Do not go beyond $500 when you use your credit card. And when you get your paycheck, make sure the cash allocated for your groceries will not be spent on something else.
Rule 4: Monitor your expenses
Using your credit card actually makes it easier to monitor your expenses. All the transactions are indicated in your monthly statements. When you get it at the end of the month, you need to scrutinize every transaction. Make sure that all of them were made by you. This will help you check if you had been a victim of identity theft. If there is anything that is not supposed to be there, you need to report it immediately and have it corrected.
Apart from what is on your credit card statement, you should also monitor your cash expenses. There are mobile apps that you can use to help track where your money is spent on. Be diligent about this because it will help you understand your spending preferences. Not only that, it will also allow you to identify any problem areas that could compromise your financial position.
Rule 5: Have a payment plan in place
Ideally, you want to make sure that you can pay your credit card balance in full. However, there are instances when there is a huge amount that can only be bought through your credit card and paid in installment. This is okay – as long as you have a payment plan in place. Never commit to buying something expensive in installment if you do not have an idea how to pay it back. Fortunately for you, there are debt solutions that you can do on your own. You need to get to know what your options are so you can use credit cards wisely. If you know how to pay them back, it will not endanger your financial position.
Make sure you master all 5 rules so you can use credit cards wisely. Since the Great Recession, these cards have been given a bad reputation. That is quite unfair since the problem lies in our own reaction to the use of credit cards. We do not have to completely eliminate the use of credit cards to protect our finances. The real solution is to learn how to use it properly so we can make smart choices about our debts.