Everyone and their mom has a credit card these days. Indeed, in my circle of friends, I think that I am the only one who has only two cards. Most of my friends have at least three! This does not mean much, except that I cannot afford to have more than two – indeed, I should only have one, as it is very easy to overuse credit cards.
Credit cards are quite convenient and offer a lot of benefits. In some cases, they may even be necessary. However, it is common knowledge that credit cards can be used improperly, and thus lead to unmanageable debt problems. For your the sake of your personal finance health, please read these ways you can (should!) use your credit card. Here’s another set of life tips brought to you by your friends at o5.com.
Use your card for specific purposes.
Before you start swiping that card, make a list – a written one, not a mental one, mind you – of the purchases that you will use that card for. Make sure that you exclude day to day purchases as these tend to accumulate quickly, and before you know it, you will have a large credit card bill. For example, you can identify these things are “for credit card use only:”
- Airplane tickets for vacations
- New gadgets
- Special occasions such as dinner at a nice restaurant
- Other online purchases that require credit cards
If you stick to your list, you will be able to monitor your purchases better, and you can manage your payments more easily as well.
Stay within a certain percentage of your credit limit.
Credit experts suggest staying within 30% of your credit limit. If your credit limit is not that high, it is understandable that you will go beyond 30% sometimes. The idea is simple, though: make sure that whatever amount that you owe, you will be able to pay back within a month, maybe a few months. This principle of managing your personal finance works all the time.
One big reason for this piece of advice is that credit scores also depend on how you use your credit card. The higher your debt (unpaid credit card balance included), the lower your credit score will be.
See your card as an expense that has to be paid off regularly, not as an emergency fund.
Unfortunately, a lot of people view their credit cards as emergency funds. Worse, their definition of emergency is hazy at best. They see something they want to buy and have no cash for it – it’s an emergency, take out the old plastic! This is one of the worst things that you can do to put your personal finance situation in danger. The best way to go about it is to plan your purchases as you would without a credit card. And, when you do use your credit card, make sure that you pay it off before the due date.
Swipe the card, don’t get a cash advance.
This is directly related to the previous piece of advice. When you find yourself short of cash, and your bank account is zero, you will be tempted to use your credit card to get a cash advance. While this may be justifiable in rare cases, you really want to stay away from this practice. For one, cash advances on your credit card carry much higher interest rates. Even if you pay them off immediately, you will still be losing money. Another reason is that it is very easy to acquire this habit, and before you realize it, your credit card bill might be too difficult for you to handle.
Treat your credit card as cash as much as possible.
It may seem contradictory – credit card and cash – but my point is for you to NOT think of your credit cash as money that you have when you do not have it. Instead, check your bank account – what you have now and what you will have in the near future. Check your other expenses. Make sure that you will have enough cash to cover your credit card bill before you actually use it again for another purchase.
Credit cards, if used wisely can be a great asset.
Photo courtesy of moacirpdsp
Smart tips, indeed!