How Should I Use My Credit Card?

Having a credit card in your wallet may seem like a simple, modern convenience, but it is important to understand that having a card is a great responsibility finance-wise. This is particularly true if you tend to use it in situations where you do not have the money to offset the purchases made with your credit card. When you are in this kind of situation, it can be difficult to manage having a credit card without ending up in a financial mire. Many credit card owners struggle to balance using their cards for necessities and the reality of their budget, trying to avoid getting into considerable debt. Having a credit card does not have to be a burden, though, and it does not mean that your financial health has to be in danger. If you manage your credit card well and monitor it closely, it can be a valuable financial tool.

Apply for Cards Wisely

If you do not have your card yet, take care when you do apply for one. Apply for those that have no annual fees – this can save you some money in a time when every penny counts. You should not be required to pay the company simply for the privilege of keeping the credit card in your pocketbook. Look around for cards that will provide you with rewards for usage. A wide variety of credit cards now offer frequent flyer programs, gift certificates, cash back on purchases, and more bonuses for each dollar that you use the card for.

Don’t Go Card Crazy

Applying for credit cards is easy. The part that becomes a problem is paying what you put on them. This gets very difficult when you have a half dozen to pay down. You can avoid this in the first place by not going overboard with your applications and not obtaining too many cards. Having more than one or two cards issued in your name can be a financial disaster waiting to happen. One of the best pieces of credit card advice is to have two cards at most – a regular card and a card that is reserved for emergency situations. If you have a habit of slapping your card down on the counter for everything from a tire change to a candy bar, leave it at home unless you are planning on using it for a specific purchase. This way, you won’t be tempted to use it for anything and everything.

Avoid Overspending

Watch your spending closely. At the times you do use your credit card, don’t spend so much that you cannot repay the full amount easily. At any one time, you should only have a balance on your card that you can repay completely within one to two months. Also keep in mind that any balance left on the credit card when your interest-free introductory period expires will accrue interest. If you have put too great an amount on your card, it becomes more likely that you will be able to make only the minimum payments. These are typically all interest, meaning that you are not paying down on the actual balance, but only the finance charges on that balance. While paying the minimum means that you will remain in good standing as far as the credit card company is concerned, it also means you remain in debt to them until you have the funds to pay down more.

Pay Attention to Your Statements

When you receive your credit card statements in the mail, be sure to read them thoroughly and identify what each purchase was. Make sure you are not being charged any fees that you were not informed of, that there are no unexplained or odd charges to your card, and that every charge is for the correct amount. Many identity thieves and perpetrators of credit card fraud succeed because the card holders do not pay enough attention to their bills.

Understand How Much You Owe

Far too many card-holders ignore their debt. Too often, this is typically because they fear knowing just how much debt they have gotten themselves into. However, constantly keeping up with how much you owe can help to keep you from building up too much. A great way to control your debt is by figuring up how much is acceptable for your unique situation. Add up your total income; many financial experts advise that you do not go over 25% of this amount in debt. For instance, if you make a total of $40,000 annually, you should keep the amount that you owe at or below $10,000. However, this percentage is not right for all credit card holders. Most people are unable to pay that amount comfortably, and find that it is wiser to restrict themselves to a debt percentage of 5% to 15%. If you are afraid that you might be putting too much on the balance of your card and your payments are growing too expensive for you to handle, consider ceasing your use of it until the balance has been paid down enough that your payments are not harmful to your budget.

Keep Records

For the safety of both your identity and finances, it is a great idea to keep a record of your credit card numbers. Also make a list of the phone numbers for all credit card companies that you use. Put these lists in a safe place – preferably one that locks, such as a safe – so that you can access them to report a physically stolen credit card or dispute any incorrect charges as soon as possible.

Credit cards are a great addition to almost anyone’s financial situation – if they are used responsibly. If you are careful with your cards and keep up with the documentation surrounding their use, there is no reason that they should make you apprehensive about your budget.

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