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Credit Cards 101: How to Use Credit Wisely

Credit Cards 101: How to Use Credit Wisely By Cyndi Cohen
Published January 31, 2012
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In today’s culture and economy, one would be hard pressed to find a US consumer without at least a single credit card in their wallet. While most people carry some form of plastic currency, there are those of us who use it responsibly and those who could benefit from a lesson in smart credit card usage. In fact, according to moneyzine.com, the 2010 US census bureau reported that U.S.citizens had over $886 billion in credit card debt and that figure was expected to rise to $1.177 trillion during the year. More specifically, the report stated that each card holder had an average credit card debt of $5,100 and that number was projected to reach $6,500 by the end of 2011.

What credit card users must realize is that credit cards are a tool which, if used wisely, can help establish and maintain good credit, and finance major expenses, but if used foolishly can also be the key to one’s financial undoing.

Read on for some simple tips from Credit Unions Online on managing your credit card usage and making the most of the plastic in your wallet.

5 Tips on Smart Credit Card Usage

  1. Go for low-rate credit.

In a world of many types of high rate loans, introductory low-rate credit offers seem to be everywhere, all of the time.  If you have a decent credit score, then you qualify for these offers, and are no doubt finding them in your mailbox on what seems like a daily basis.

On any given day, you may be receiving mailers touting deals like:

  • 0% for 6-18 months, depending on purchase amount/type
  • 2.9% for the life of the transferred balance
  • 1% cash back on balance transfers

In fact, many credit unions, although they offer consistent low rates throughout the year on their credit cards, are also jumping on the low intro rate bandwagon with great promotional rates on purchases and balance transfers.

Low-rate offers of this kind definitely have the power to help consumers who want to pay off other high-interest debt, finance large purchases, or pay for a family member’s education expenses.  However, it is crucial to read the fine print so you don’t fall into a credit card company’s trap.  Be aware of late payment rules, purchase limitations, balance transfer or non usage fees, and more.

Moral of the story – low rates are great on their own without their evil cousins, fees and limitations.

  1. Reward yourself.

If you’re going to use a credit card, you might as well get paid to do so, either in the form of gifts or cash.  Although rewards can be beneficial, it is important to know the rules associated with them and to spend sensibly so you’re getting the most out of them.

Credit card reward programs offer everything from restaurant and home goods gift cards to travel rewards to free entertainment vouchers to actual cash.  While the rewards themselves are great, the cards they come with often have higher interest rates.  Therefore, if you are a person that intends to carry a balance, you might want to be wary of such cards or own two cards – one to rack up rewards with no balance and a lower interest card that can handle a small balance.  There may also be stipulations or requirements that come along with rewards cards.  These may affect what or how much you can earn in rewards and so are another thing to watch for.

Last but not least, keep tabs on your spending and be sure you’re not over using your card simply to earn rewards.  Often card holders get caught up in the fun of it and fail to realize their spending habits are no longer cost effective.

  1. Pay prudently.

It is always best to pay your credit card balance if you can, and if not, at least pay something towards your principal.  If you are consistently paying the minimum, you would be shocked (and frightened) to find out how long it might take you to pay off your credit card debt and how much of your hard-earned money you’ll be throwing away on interest payments. Therefore, pay as much as you can possibly afford on a monthly basis until your balance is zero. This may be easier said than done but is the key to becoming and staying debt-free.

If you have more than one card, you can add another element to your payment strategy. Maybe you have 3 or 4 cards and cannot afford to pay entire balances on all of them. Determine which card has the highest interest rate, pay that balance and pay minimum payments on the others in order to avoid late fees. Slowly but surely you will get your debt under control.

If you are just starting out with your first credit card and have not incurred debt, a great way to beef up your credit score is to make purchases with your card and pay your balance monthly.  This consistent cycle of buying and paying will help build your credit and give you a major advantage when applying for a mortgage or auto loan.

  1. Spend within your means.

When using your credit card for purchases, it’s important that you are closely monitoring your spending.  Perhaps you are one of those people who have their spending under control and pay their credit card balance faithfully each month.  If so, you are successfully managing your credit line.  However, if you are not, you should be making a conscious effort to ensure you are staying within your own, personal budget and within your credit line.

If you have an outstanding balance, you should be reading your credit card statement each month and tracking your charges to make sure you’re not overspending and living beyond your means.  You may also want to go back and review your statements from the past 12 months just to get an idea of your spending trends and see how you may be able to cut back.

  1. Consult a counselor.

If you begin to feel you are struggling with your credit card bills, don’t panic. Review your statements and spending habits to get an idea of where you stand.  If you determine that your debt is greater than 20% of your annual income, it is probably a good idea to get some help from a professional credit counselor. 

These expert advisors can help you develop a plan for getting your spending under control and paying back your debt.  Although the National Foundation for Credit Counseling can set you up with a low-cost counselor, you may want to first contact your credit union.  Often, credit unions offer free, confidential financial counseling, education, and debt management – these programs offer certified counselors who will help you review your credit report, build a structured repayment plan, and figure out a money management solution.  Remember, you are never alone and there is always help available!

Good luck building your credit and staying on track during 2012!

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