Credit cards have a bad reputation due to high interest rates, hidden costs and financial problems that often come with it. For that reason, many people are not advised to use credit cards. It is true that lack of self-discipline, poor money habits and readily available credit can put you in a bad financial situation, but it does not necessarily have to be that way. With a few rules, using credit cards can actually be beneficial. Here are five simple rules you can implement to get the most out of your credit card.
1. Have a purpose for credit card use
Most financial institutions try to entice potential customers with various benefits, such as discounts in online stores, gasoline, airline points, etc. Smart use of credit cards is largely about getting the most out of these benefits. How can you do that? By figuring out what to use your credit card for. If you have one or more specific purposes for your credit card, you can more easily choose a card that has benefits that you are actually going to avail. This way, you will actually make a profit from the card use.
For example, if you shop a lot and only take public transportation, you have a lot more use for a card that has discounts on online stores rather than one that offers gas benefit programs and gas station discounts. Having a purpose for the credit card also works which is a rule for when you can or cannot use the card. It can help to limit consumption.
2. Pay down the full amount before the interest-free period expires
Most credit cards have an interest-free period of 40-50 days where no interest or fees are charged on the amount you used. Take advantage of this. Sit down once a month (preferably on payday) and pay all you spent on the card. You can also use the opportunity to review your bank statement to see if there are any unknown payments that may be fraudulent.
3. Use your credit card when shopping online
If you have no particular purpose in mind for your credit card, you may want to use it every time you shop online. With the number of security breaches happening in the world today, no data is 100% safe. Using credit cards for e-commerce can be an added protection for fraud. It is usually easier to get the money back when you pay with your credit card compared to the bank card associated with your checking account.
4. Set your credit limit yourself
Did you know that in most cases you can set your own credit limit? So you do not have to accept the greatest credit limit you can get. This way you protect yourself from over-consumption and buying things you don’t really need.
5. Find out all fees and charges
In addition to the interest rate and the length of the interest-free period, you should be able to ignore all the other fees the card has. Does the card have an annual fee? Try to find one without it. Does it cost to withdraw money from an ATM or pay bills? If you intend to obtain a card for travel, you should know what it costs to use the card abroad. Is there any currency spread? Where do exchange rates come from? In other words, read carefully the terms and conditions to know exactly how much credit card usage will cost you.