How to Use Your Credit Card Wisely

Whether you shop online, by telephone or by mail, a credit card can make buying much easier; but when you use a credit card, it's important to control your spending. Use a credit card wisely and you can reap benefits like cash back, bonus points and airline miles, not to mention a better credit score. Use it unwisely and you could end up under a mountain of debt.

Here are some useful tips on using credit cards.

1. Avoid paying debt at 18%
Credit cards can be very useful if you are able to pay off the balance each month. However, when you start paying interest at 18% or more, the advantages are easily outweighed by the very high interest payments. Therefore, always seek to pay off the balance and avoid these rates of interest.

Negotiate with your creditor. If your credit score is 700 or above, you may be able to get a lower interest rate or get the company to drop a late fee.

2- Select a credit card with low or zero fees
Credit cards aren't free. Most bank will charge a fee from $25 to $300/year. Since different types of credit cards charge different fees, it's good to know what your credit card fee is. Ask your creditor to waive the fee. Some credit cards automatically waive the fee if you make a certain amount of purchases in a year.

3- Avoid overspending
Don’t get carried away just because you are paying with plastic rather than cash. The golden rule is “If you can’t pay for it, do not buy it”. Don’t see credit cards as a way of borrowing. See it as a convenient way of paying.

4. Use 6-month interest free offers
Many credit card companies seek to entice new customers through offering introductory periods of 0% interest. This can be very beneficial for consumers of credit cards. These 6-month interest free periods are ideal for dealing with periods of temporary cash shortfalls. It is a much preferable alternative than paying interest at 18%, the standard rate for some cards.

5. Transfer a balance to a new card with lower interest
If you're transferring a balance to a new card with lower interest, find out how much the company will charge for the transfer. Make sure that it can be done electronically so you don't accumulate interest on both the old and new accounts. Low-interest introductory offers may apply only to the balance transfer and not to new purchases.

6. Set up direct debit to pay minimum monthly payment
This means you will never miss the payment and it is the easiest way to make sure you don’t damage your credit rating. Of course, you should try to pay the whole amount off. But, the main benefit of doing this is that you don’t need to worry about a missed payment which is very damaging for your long term benefit.

7. Transfer the debt to a lower interest paying loan like a mortgage or personal loan.

8. Use one card for collecting points
Choose one credit card to put the majority of your spending on. It is best to choose a card that has an attractive points/reward system. You should always pay off this credit card at the end of the month.

9. Don't exceed 30% of your credit limit on each card
Credit bureaus don't care if you pay off your balance each month. They're interested in how much of your available credit you use. If it's excessive, your credit score will drop.

10. Limit the number of cards you have
Experts recommend having two to six cards. Applying for lots of cards can hurt your credit score. Conversely, closing several credit cards at once will trigger a decrease in your score.

Finally, always be cautious about disclosing your account number on the telephone unless you know the person you're dealing with represents a reputable company.

Always carry only the cards you anticipate using to prevent the possible loss or theft of all your cards or identification. Always report lost or stolen credit cards to the card issuers as soon as possible.

If you've fallen off the wise-spending wagon, seek counseling from a nonprofit credit-counseling agency.

John Siarkas

John Siarkas

Broker
CENTURY 21 Heritage Group Ltd., Brokerage*
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