Using Credit Cards Wisely

As interest rates soar and debt concerns grow, credit cards are not necessarily the most desirable items right now. Talk of a failing economy, mounting economic debt, and high unemployment rates don’t instill much confidence in consumers to take out credit in their name. However, for many of us, credit cards are a necessity of life. There are many advantages to using credit cards for some of your expenses. Building strong and responsible credit early on is important and using a credit card for daily expenses like gas and groceries can allow you to go about your daily business without having to carry large amounts of cash (as long as you are sure to pay your balance in full every month).  Credit cards can even allow you to earn points (miles) toward travel, meals or even to get cash back. But there are many ways that credit use can go astray for some consumers… Just remember smart and careful credit use is entirely possible for any individual. Follow these tips to use credit cards in a wise and responsible manner.

 Carefully Watch Your Accounts

Managing your accounts carefully is the key to staying on top of your finances. Never charge more than you can pay off in full when the bill comes.  To more easily manage your account, register at the card issuer’s website. Create an online account and check your card use a few times a week or better yet, set up alerts on your account, so that if a charge is made you are notified by email, text message or both. This is the best way to keep track of your spending, monitor your balance, and watch for any potentially fraudulent activity. With everything accessible online, it’s wisest to just stay well versed in your credit use and spending.

Understand Transfers

It is essential that you understand the process of credit transfers before you do one. Even if you find a new card with a lower interest rate, transferring your balance to that card may not be a good idea (and can cause some real issues). Before transferring, consider your current balance and the credit limit on the new card. It’s important to understand any fees that might be charged befor transferring. In general, getting a lower interest rate is not worth it if you have to pay all the savings in interest or fees up front. In other words, if you are going to save 3% in interest by transferring but it costs you 3% in fees for the transfer you aren’t getting ahead unless it is going to take you more than a year to pay off the card. But if you followed the advice above and aren’t carrying any debt that you can’t pay off at the end of the month you have no worries.

Consider Changing Credit Card Debt for Secured Debt

Credit card debt is called “unsecured debt” because you haven’t given the credit card company any “security” in other words they aren’t holding anything of yours in case you don’t pay them. A mortgage or car title loan on the other hand is a “secured debt” because the lender can take your home or car if you don’t pay.  In exchange for the higher risk of ending up with nothing lenders charge more for unsecured lcredit than for secured. So if you do have a large balance on your credit card you are probably paying high interest charges on that balance. If you can switch it to a secured loan by taking a title loan or a second mortgage or home equity line of credit you can probably reduce your interest payments drastically. But just be sure that you don’t end up running up your credit card balance again once you transfer it to a secured loan.

Only Apply for the Credit You Need

While this may sound fairly obvious, it is important that you only apply for credit cards that you really need. With alluring rewards systems and opening balance awards, some cards can be very enticing. However, you should watch the number of credit lines you open. Yes, the first few credit cards you open and use wisely will improve your credit score—but having too many can reduce it. For the most part, two or three credit cards should be enough. While store credit lines can pull you in with 10% deals off, they are typically not the best idea. Be careful about the lines of credit that you decide to open. Obviously, you should only open credit cards that you really need and are really going to use. Moreover, having credit lines open that you rarely use can be problematic. In addition to providing temptation to run up debts, they can also harm your credit rating because lenders don’t just look at how much debt you have but also how much you could possibly run up if you got in trouble financially. So the more empty cards you have the more potential debt and that can lower your score.

See also:

• 6 Ways To Control Impulse Spending
• Getting Out Of The Debt Trap
• 4 Easy Ways to Build Your Credit During College
• 5 Steps toward a Stronger Financial Future
• More articles on Credit Cards and Credit Rating