Credit cards – there they stand, shining and gleaming.
Most newbies to the world of personal finance get sucked into its allure. With a flick of your pen you can purchase just about anything you want, and you don’t even have to think about it! You can enjoy the fruits of your future-self’s labor.
It’s true: a credit card is a tricky thing to own and use.
On the one hand, it does make life easier at first by giving you money you don’t have at that moment and then offering you the option to pay it back in easy installments. Add the multiple benefits, discounts and rewards associated with good cards and a credit card soon becomes an essential part of modern life.
In fact, I’d go so far as to say that credit cards can be a good thing for those who know how to wield its power.
However, credit card companies do have their motives. What are these motives you might ask?
Basically, they are trying to get you to spend as much money as possible.
Here comes the nightmare
Once you are done with your spending spree, then there’s the high rate of interest which you must pay while returning the money to the bank.
However, there’s no reason to be in a dilemma. Like I said earlier, it doesn’t mean you shouldn’t use credit cards. In this article, I’ve put together four golden rules that you should follow while using credit cards. This will ensure that you’re using the cards responsibly!
Rule #1: Pay on Time
Unless you have made a particularly big purchase which you cannot pay off in one go, always pay your credit card bills in full and on time to avoid being charged interest or fees of any kind. If you decide to convert the amount into installments, pay it out as fast as possible to save money in the long run.
On the flip side, now that you know that you should pay all your bills on time, you should have an idea of how much you can charge to your credit card. I’d recommend that you sit down with your balances and interest rates at the beginning of every month (or before a big purchase), and work out just how much you can afford to put on your credit card. If it’s way out of your budget – for example, your next payday won’t cover the credit card bills – then don’t charge it to the card!
Rule #2: Make Use of the Deadline
Most banks and credit card companies usually offer their customers a significant time period for paying off the debt and we would advise that you take advantage of that time period and pay the bill as close to the statement closing date as possible. The longer your money sits in the bank, the more interest it earns.
If you have a greater risk appetite, you can even put that money to work in higher yielding investments such as stocks and bonds. However, do note that you usually won’t see any meaningful returns during the repayment period stipulated by credit card companies.
Rule #3: Don’t Purchase While in Debt
If you are in credit card debt already and you are carrying around a balance on one of your cards, don’t use that card further unless you have paid the debt out in full. The moment you start carrying around a balance by not clearing the full amount by the end of the card’s stipulated deadline, every purchase you make with that card from there on will continue to incur charges in the form of interest and fees. Any transaction you make with that card will continue to count as debt.
Rule #4: Choose Your Card Carefully
It is important that you match your card with your needs and do your research on quite a few options before choosing one. Take a look at the following list and make sure that you have them all checked before you sign up.
- The interest rate shouldn’t be too high on EMIs.
- Don’t pay unnecessarily high annual maintenance fees for a card with facilities that you have no need of.
- Credit card rewards can be very useful, so choose one of the best rewards credit cards to avail excellent cash-backs, sign-up bonuses, discounts and much more.
- It should be widely accepted (Visa, MasterCard, etc.).
- The limit should be high enough for you, but don’t pay extra for a card limit you don’t need or can’t afford.
The key to using credit cards wisely is in understanding the fact that behind all the marketing, every credit card company inevitably wants your money. Be thorough in checking the terms and conditions, the fine print, the interest rates, hidden fees and clauses, bonuses, and benefits before signing up. They are still an excellent financial tool nonetheless; you just need to be wise while using them.
Now young grasshopper, go out an live the 4 golden rules!
Credit cards aren’t all bad. But they do seem evil to the people who allow credit card debt to overrun and control their lives. I’ve given you 4 golden rules to keep your credit cards (and their debt) under control, so go out there and make the full use of it!