Credit card debt is crippling millions of Americans. These pieces of plastic are the root of most debt. They are easy to acquire, tempting to use, and can have massive interest rates. But at the same time, credit cards are safe, easy to use and when used properly they can be a godsend.
In this guide we’ll show you how to use them correctly as we cover 10 credit card tips.
10. Don’t Sign-up for too Many
Multiple financial accounts that have not accrued debt can have a positive affect on your credit score. However, a portion of your credit score is based on diversity and if your credit report shows nothing but credit cards, then your score will be reduced.
What’s more, every time you signup for a credit card your score will take a hit. This is true of any financial account, whether it’s a bank account, a savings account or a mortgage. So, tread carefully, don’t be tempted by big offers and if you need to consolidate multiple credit card debts then consider a personal loan over another credit card.
9. Keep Inactive Accounts
Let’s assume that you have a high interest credit card that you don’t use, but are still paying off. The debt was accumulated over an extended period of time, you made the decision to stop using it and after taking out a consolidation loan, or simply paying off gradually, the debt clears.
What do you do?
If your answer is to cut it in half and get rid of it, then you’re making a mistake. Your credit score takes into account your total available credit and how much of that credit you are using. If you have another credit card with a limit of $10,000 and a debt of $9,000, and the credit card you cleared had the same limit, then your credit score will show that you are using $8,000 of a possible $20,000, or 40%.
If you get rid of that card then your credit drops to $10,000, your debt remains the same, and you’re now using 90% of available credit.
Providing you are not paying any fees, you should consider holding onto the card, at least until you are in a better position financially.
8. Ask for Lower Rates
What few cardholders realize is that they can get a reduced interest rate simply by giving their credit card company a call and asking for it.
You don’t get if you don’t ask, and this one is very effective, with more than 8 out of 10 cardholders getting a reduced rate when they ask for it.
7. Don’t be Scared to Move
Don’t stick with a credit card company just because you’re scared about the ramifications of moving or you don’t believe you have the time to do so. There are no ramifications, and it really doesn’t take that long.
Switching to a new credit card can save you a small fortune and it can also unlock a host of benefits. Most credit cards offer introductory rates on purchases and balance transfers, so you can move your entire balance and stop paying interest on it for up to 2 years, while also avoiding interest on bills, groceries, and other expenditures.
6. Stay Aware
It’s important to get into the habit of checking your statement every month and knowing where every dollar was spent. Not only can this help you to budget better, but it also means you can spot fraudulent charges and errors, which can be very costly if you don’t know they have occurred.
Credit card issuers are very helpful when these issues occur, but the onus is on the cardholder to catch these mistake/fraud charges in the first place.
5. Pay More Than Minimum
The easiest way to prolong your debt is to keep paying the minimum amount every month. This will maximize the amount of interest that you pay and reduce your chances of ever digging yourself out of this hole.
If you can afford to pay more, do so. Your first priority is to make sure that you can meet the minimum payment, your next priority is to surpass it when possible.
4. Avoid the Penalties
If you regularly miss payments because you are walking a very fine financial line, then you need a credit card with no penalty APR, one that is much more lenient with cardholders who miss payments.
The majority of cards will charge you a penalty APR, which means that your bad situation just gets worse. These rates can be significant, bumping your APR to as much as 29.99%.
3. Be Aware of the Fees
Credit cards can hit you hard with unexpected fees, from foreign transaction fees to balance transfer fees and cash advance fees. There are a number of them and they should all be taken into account when searching for your next card.
If you spend a lot of time abroad, look for a card with free foreign transaction fees; if you use it to withdraw cash, look for one with a low cash advance APR.
2. Don’t Get Caught up in Cash Back Offers
Everyone wants to think they can get something for free, so everyone is drawn to cash back credit cards, also known as rewards cards. But these cards will not benefit all users.
If you pay off your balance every month and use a credit card to build credit or stay secure, then these cards are great. They can save you hundreds of dollars a year and reward you on the things you buy every day. If, however, you’re constantly in the red then these cards will punish you.
They all have higher interest rates than you can find on non-rewards cards and that additional interest will cost you far more than the cash back can save you.
1. Debt Starts and Ends with Credit Cards
Credit cards may be the path to debt and financial destruction for many users, but they can also be the path away from debt.
We’ve already looked at some of the ways that you could avoid becoming a victim of credit cards. But if you already have, or you are starting your financial journey and have no credit to speak of, then look into secured credit cards.
These cards offer the same accessibility and safety of standard credit cards, but they are available to people with bad credit and no credit and they don’t have huge interest rates.
These cards work in a similar way to a bank account. You give them money and this then becomes the money that you spend on the card. Unsecured credit card providers report to the main credit bureaus, helping you to build your credit score with each purchase.
If you use the card wisely for several months then you may be offered an unsecured credit card by the same provider.