Itâ€™s true that credit card use can lead to dangerous amounts of debt. However, it is important to note that it isnâ€™t the credit cards themselves that are evil. In fact, there are plenty of great credit cards that can actually be great financial tools. The key is being smart about your credit card use. If you want to get the most out of your credit cards, here are 5 rules to follow:
1. Only Spend Money You Actually Have
Itâ€™s important to remember that credit cards donâ€™t represent â€śextraâ€ť money; your credit card balance is essentially borrowed money. If you donâ€™t pay off your credit card balance, you will have to pay interest on it. This is when things start to get expensive as a credit card user. Make sure that when you use your credit card, you already have the money to pay off your purchase. Incorporate your credit cards into your regular monthly budgeting to avoid going over.
2. Pay Off Your Balance Each Month
This was hinted at in #1, but it bears repeating: Pay off your balance each month. Smart credit card users donâ€™t carry a balance because it becomes too costly. Instead, make it a point to pay off your balance each and every month. You can reap the benefits associated with your credit card without having to pay interest.
3. Watch Out for Fees
Be aware of the fees that are being charged. While a credit card with a generous rewards program that you will use can be worth an annual fee, most cards just arenâ€™t worth the fees you pay. Also, watch out for foreign transaction fees, high late payment or over the limit fees, and other charges that might be part of the program. Also, be wary of credit card protection plans that will charge you a fee. This is especially important if you are trying to pay down debt and still have a credit card balance. You donâ€™t want to be paying these fees.
4. Get a Rewards Program You Will Use
When choosing amongst credit cards, it is usually better to choose one with rewards. However, you want to make sure that you are choosing a rewards program that you can actually use. Check to see what restrictions there are, and what kinds of fees might be charged for redeeming your rewards. If you donâ€™t travel much, an airline rewards card might not be the best option. However, if you have a long commute, a rewards program that gives you extra points or cash back for gas purchases can be of great benefit to you. Consider the rewards as you use your credit card.
5. Use Your Credit Card for Rewards
The savviest credit card users know that they will get the best benefits when they use their credit cards a great deal. A credit card is convenient, and you can earn rewards and cashback. You should use your credit card for everything you can, from gas to groceries to online purchases. When you use your credit card for regular, everyday, budgeted spending, you can reap the rewards without paying the interest. This is a good way to rack up the rewards or earn hundreds of dollars in cash back each year.
The Bottom Line
Your credit card can be a financial tool or a hindrance. If you are careful and responsible about your credit card use, you can reap the benefits of free stuff, cash back and discounts. Be choosy about your credit cards, and remember to pay them off each month. You will amazed at what it can do for your finances.
Janet is a writer for Credit, Eh, the personal finance and wise credit use blog from CreditCardsCanada.ca, a resource for finding the best Canadian credit cards.