Credit cards have many perks that make them worthwhile financial products. These cards let you build credit with every purchase and corresponding on-time payment. Credit card rewards programs give you cash or points back from purchases you would have made anyway. However, credit cards can also be dangerous and result in thousands of dollars of debt if you are not careful. Knowing how to manage your credit card will keep your balance in a good position and help you reap the rewards of credit card usage.
9 best ways to manage your credit card
A credit card is a great resource. Managing it well lets you capitalize on the advantages while staying away from common pitfalls. Following these tips will help you use your credit card like a pro.
1. Read the fine print
Most people skip over the fine print. Terms and conditions documents get long, and you have to agree to them if you want to use the card. Some consumers agree to the fine print to get the credit card and then accept any consequences in the future.
The fine print details how much you may have to pay for your credit card, including annual percentage rates (APRs), fees, and penalties. The terms and conditions outline the rewards programs, but if you look closer at the document, you may discover that your points expire within a year if you don’t use them. Some credit card issuers let you accumulate points without any expiration, but some companies sneak it into the fine print. You don’t want to save up points only for them to expire before you get to use them.
2. Choose your credit card wisely
There’s no shortage of credit card companies. You can get a credit card that aligns with your objectives and gets you closer to the next milestone instead of settling for a card that doesn’t fulfill your parameters. You can get secured credit cards with no annual fees and cashback rewards programs. Yes, some of these exist. Consumers looking for unsecured cards should consider how they spend their money and which rewards programs they want to use. Know what you want in a credit card and filter your options. You don’t have to open an account with the first credit card issuer you find.
3. Understand the interest rates and fees
Interest and fees highlight the potential consequences of bad money habits. You only pay interest if you fall behind on your balance, and some fees are avoidable. While some costs, like ATM fees, are unavoidable for people who frequently use those machines, you can minimize costs by taking out larger sums of money at the ATM. Larger transactions reduce the number of total ATM transactions, and you get charged for each transaction instead of based on how much you withdraw.
4. Keep an eye on your balance
Monitoring your credit balance is the most important element of effective credit card management. Keeping an eye on this number makes you more conscious of every dollar you spend and how much you have to repay before having no debt. If you can use a credit card and wipe out your debt at the end of each month, you can capitalize on all of the advantages without any downside.
5. Make timely payments
Even if you can’t wipe away your credit card debt this month, you should still make the minimum payment plus a little extra. Paying more than the minimum gets you out of debt sooner, and on-time payments are critical for your credit score. Late payments will result in fees and hurt your credit history. Payment history makes up 35% of your credit score, more than any other category. On-time payments will improve your score and help you qualify for better loans and lower interest rates.
6. Take advantage of rewards
Many credit card issuers use rewards to entice new users and keep existing cardholders loyal. You can get cash or points back on every purchase. Credit card reward programs have different incentives based on spending categories. Your card may offer better rewards for hotel bookings and other traveling costs. Look at the rewards your credit card offers, and take advantage of them to lower costs. You can use a cashback program to trim your credit card debt, so interest doesn’t accumulate.
7. Monitor your credit score
Your credit score is one of your most important financial numbers. Lenders look at this number before approving mortgages, auto loans, personal loans, and other types of financing. Reviewing your credit score helps you see fluctuations and stay on top of them. If your score goes down a few points, you can look at your credit card activity and see if you missed a payment. Refocusing your efforts on timely payments and lowering your balance will help you recover from credit score dips.
8. Stick to a budget
A budget keeps you firm on your expenses. Budgeting creates guardrails that prevent people from spending out of control. Tracking expenses and monitoring credit card statements help you gauge your monthly spending and purchases of unnecessary items. Trimming these items and using your money for other purposes (investing and debt repayment) will help you stay firm with your budget. People tend to overspend when they have fewer reasons to hold onto their money. A meaningful goal such as becoming debt-free or saving up for a down payment will strengthen your budget.
9. Use a debt repayment strategy
It’s best to avoid debt, and if you have no credit card debt, it’s best to repay the balance in full each month. You can spend less than you make and monitor your expenses. However, some people already have credit card debt, and it can feel insurmountable if you’ve been holding onto it for a few years. A debt repayment strategy can put you on the path to a debt-free lifestyle. Here are some strategies to consider:
- Snowball: Pay the smallest debt first after making the minimum payment for everything else. Having fewer debts makes it easier to prioritize them.
- Avalanche: Focus on repaying debt with the highest interest rate. Getting rid of these financial obligations first reduces your monthly interest payments.
- Consolidation: Get a personal loan and use those proceeds to pay off your higher-interest debt. You can also take out a new credit card with an introductory 0% APR and transfer the balance over. You won’t get rid of the debt, but you’ll have a few months or even a year with no interest accumulation.
Fortify Your Finances With Effective Credit Card Management
Credit cards are great financial products. You get to establish credit, build up to an excellent credit score, buy goods even if you don’t have enough money at the time, and capitalize on rewards programs. While these advantages are enticing, poor credit card management can make you vulnerable to debt, high-interest payments, and fees. Staying on top of your credit card usage will help you avoid pitfalls while experiencing the upsides a credit card has to offer.
FAQ
What should I keep my credit card balance at?
Ideally, you should keep your credit card balance at zero. Paying down the balance before the end of each cycle means you don’t have to pay interest. Get it as close to zero as possible in the meantime.
What’s the best way to use a credit card?
The best way to use it is for any purchase you can cover later when the bill comes due. That way, you don’t go deep into debt and benefit from good payment history.
Should I be paying extra on my credit card?
You should not be using a credit card with an annual fee unless its rewards program dramatically exceeds the other options. You can find great credit cards without annual or hidden fees.
