Credit cards are a part of everyday life in today’s financial culture. Unfortunately, a large number of cardholders misuse them, resulting in tremendous levels of consumer debt for millions of people. Credit cards themselves are not necessarily bad; but how people use them can become bad for a consumer in certain situations. Managing your credit cards wisely is important.
Here are our five ways to be a smart credit card user, not just this holiday season, but year-round:
- Try not to maintain a balance on your credit cards because the interest rates are usually very high and can become a problem quickly. Pay your card off in full each month, and if you find that you cannot do that, it is probably best not to use them. Instead, look at your budget and trim your spending.
- Utilize auto-pay. If you accidentally miss a payment, you will accrue a late charge for that period, which adds to the balance you owe. To avoid late or missed payments, use the auto-pay feature on your credit card. It will save you from worrying and give you more peace of mind as well as ensure that you avoid paying large interest fees.
- Don’t apply for credit cards that you do not need. The first few credit card accounts that you open will build and improve your credit score, but after that, applying for new cards will generally lower your credit score. Limit your credit cards to two or three, which is typically all a person needs.
- Don’t close credit card accounts; use them once a year. If you have more than two or three credit cards already, don’t close them, even if you don’t use them. Though it may seem counterproductive, closing them could actually lower your credit score. If your total amount of available credit drops, as it would when you close accounts, your credit score may decrease. Many credit card companies actually cancel cards that never get used, so use each of them at least once a year even if it’s just for a small purchase that you quickly pay off in full when the bill comes.
- Avoid taking cash advances on your credit card. If you use your card to take a cash advance, you will be charged interest from the day you take the advance until the day you repay the entire amount. Unlike regular credit card purchases, there is no grace period on cash advances from a credit card and the lender will likely charge a very high interest rate. If you are using the cash advance feature on your credit card because you don’t have enough money in your checking account, it’s probably time to review your budget and see where you can trim spending so you don’t need to rely on your credit card for a very high interest rate loan.
