Credit cards are great tools for helping us manage our finances and pay our bills. But they can also get us into trouble if we don’t use them responsibly. In this article, we’ll give you some important tips for handling credit cards that might just prove to be the difference between maintaining good credit and damaging your credit severely.
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According to Army Times, a newspaper geared toward active duty military personnel, one of the fastest ways to destroy or build credit history is through the use of credit cards. Using credit cards improperly will have a devastating effect on your credit history and your score, while the opposite is also true. That said, before you even entertain the thought of applying for a credit card it’s important that you determine you’ll use it responsibly or destroy it.
Cash for Credit Plan
Just about any financial adviser worth his salt will tell you that using credit cards on a regular basis is unwise unless you have the cash to pay them off at the end of the month. They concede that credit cards are sometimes necessary in case of emergencies, such as a sick child or a broken down car, but these types of scenarios should be the exception to the rule. For most of our credit card use, we should have the cash coming in to pay off credit card debt in full every month.
A good way to accomplish this is to set up a monthly budget, setting aside envelopes (or virtual envelopes if you don’t keep cash) for each category. Then, should you decide to use your credit card to purchase groceries on any given week, the grocery money in the appropriate envelope gets deposited into your bank account so it’s there to pay the bill when it comes due.
Credit Cards and Consumables
Experts also warn against using credit cards for consumable items unless you indeed have the cash to pay for them. Consumables are things like groceries, gas, and entertainment options. The thinking behind this reasoning lies in the fact that it makes no sense to pay double-digit interest on something you cannot turn around and sell if you end up running into financial trouble. If you reserve credit card purchases for high-ticket items that can be resold if need be, you are taking less of a risk of getting yourself into trouble.
Daily Carrying of Credit Cards
Credit card debt is considered within the financial industry as unsecured. As such, credit card companies rely on impulse purchases to feed debt to their cards. You can combat this tactic by refusing to carry your credit cards on your person unless you know for a fact, you will be using them that particular day.
Without a credit card or sufficient cash in your pocket, you won’t be tempted to purchase that new flat screen TV you see on your next trip to the department store. On the other hand, carrying credit cards with you constantly is a temptation to spend money you don’t have.
Get Credit Card Companies to Pay You
One of our favorite tips for handling credit cards is to find companies willing to pay you to use their card. You can do this very easily if you follow a specific set of guidelines.
First, you start by looking for a rewards card that pays you a certain percentage of cash back every month. Make sure the card does not have an annual fee or a monthly maintenance fee attached to it. Second, use that credit card for all of your routine weekly purchases and, as suggested above, put the cash you would have spent in a savings account.
At the end the month, you’ll incur no interest as long as you pay the balance in full. At the same time, you’ll be earning cash back for all of your purchases. Under this system, you could potentially earn $20-$30 per month, or more, as long as you avoid paying interest.
Know Your Rights and Responsibilities
Perhaps the most important tip for handling credit cards is to know your credit card rights and responsibilities. Oftentimes credit card companies get away with unscrupulous behavior because customers don’t take the time to find out what the law says. Make sure to check out the new rules for credit card companies. A good resource of information in this regard is the Federal Reserve. Their website is a virtual buffet of helpful information, tips, and links to other resources for credit card users.
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