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How to Use a Credit Card Wisely

A Credit Card Lifestyle

January 21, 2016 by illinois

Many people, especially those with little to no credit, think that this may be the best way to establish and build credit. Use the credit card for simply everything, and you have a great credit score in no time, right?

Credit Card

[Read: Smart Credit Habits Worth Starting]

It doesn’t work quite that easily. Due to the way that banks and other credit businesses calculate your score, this is a way of life that requires actually more sacrifice, and discipline than paying your bills by check or in cash. But, in a few cases, this can actually have benefits.

The effect on my credit score

One of the fastest effects of using your credit card for everything is that your quickly rack up thousands of dollars in charges. This can be great, but ONLY if you are able to pay off your credit card in full. Carrying any balance forward will hurt your available credit, plus the extra fees and interest will impact your payment.

Making sure that you have enough credit available for this is the single most important factor in deciding to use this. All of your bills, miscellaneous expenses and ‘fun money’ should total no more than 30% of your credit.  And a lower percentage is even better. This will give you the cushion that is needed just in case of emergency.

If you aren’t quite at this level of credit, continue using your credit card, and paying off your entire balance on time. Eventually, you will be offered a rise in your credit limit, or a different card with more credit. Then with the newly- earned credit, you can move more towards this system, continuing to be aware of the 20 to 30 percent limit you should use of your available credit.

Other benefits

Purchase protection: items bought on a credit card have purchase protection, as well as a method to dispute transactions, and withhold payment. This is great if you buy something that breaks, or is damaged, and in some cases if it is stolen! With any other payment method, you have the money already gone, and a refund is the only solution.

If you have a hobby or business, using your credit card allows a very easy look at how much you are spending on each section of your life. If you rarely use cash or debit, you can see exactly where your money is going, and make any needed adjustments to your budget to make sure these expenses are covered.

With the rise of petty theft, not having cash is an advantage. Keeping small bills and change for the small necessities, and no more. But, this also requires that you have a way to protect your card, and are aware of the ways that credit card number theft is done.

For those that simply dislike paying bills, having auto-pay on as many bills as possible, and only having the one credit card bill to pay can be a real advantage. However, please remember that you cannot use one credit card to pay off the balance of another card. This has been a rule for years, and is a sensible one to avoid creating a cycle where the bills are out of control.

Before making the change

Look closely at your budget

Using your credit card for every expense is a great way to find hidden expenses, but also requires a mental shift. Just because you are using credit doesn’t mean that the bill won’t be here soon, and additional items on the card will affect your ability to pay the balance, which will affect your credit rating.

Look at the rewards

First, this is less benefit unless your credit card gives you rewards that you actually will use. If you are terrified of flying, earning thousands of miles in free airfare (that can only be used for travel) is not very useful for you personally. This should have been at least a minor consideration when you applied for the card in the first place, but if you have a card that offers rewards you don’t want, you may want to re-think using credit for everything until you can upgrade or switch cards.

Credit Card

One card only

This plan works if you only have one credit card, and use only that one. Look at where you go, and what your plans are: this will help you determine which card will be accepted at all of the places that you are likely to go.

Additional fees

This is something to be well aware of: some places pass along the credit card processing fee that their bank charges them. On top of this, some cards have a fee for each use, or a fee if the credit card purchase is under a certain dollar amount. For these, it may be best to use your checking account for these bills.

[Read: Secured Credit Cards: Your First Choice?]

Avoid the debit card

This will not help your credit: instead, it will take the money (and any fees) out of your bank accounts, leaving the possibility of running cash-short when it comes time to pay the bills.

Filed Under: Credit Card Tagged With: credit card debt, How to Use a Credit Card Wisely

How to Use a Credit Card Wisely

November 6, 2013 by illinois

The credit card has a poor reputation and while and is seen by some people as something almost evil. In reality it is just a piece of plastic and the person that has the credit card has control of how and when it is used. When you use a credit card wisely then it has many benefits that you can take advantage of to add convenience to your life and to always have source of simple to access credit available in emergencies. Used unwisely credit cards can become a financial millstone that drags down our ability to plan for the future.

How to Use a Credit Card Wisely

We have compiled some reasons to use a credit card and some reasons that you might stay away from a credit card. You can read through them and honestly look at yourself and your financial situation and then decide if you should use a credit card or avoid them to put yourself on the right footing to have a better financial future.

Reasons to Avoid Using a Credit Card

Here we have compiled some reasons why you might consider a credit card is not the best thing for your financial future. It is important to be honest with yourself so that you can make the right decision.

  • Do not budget and tend to spend when you have money and go without finances are tight.
  • Do not take your finances seriously and are happy to live from paycheck to paycheck.
  • Will purchase things spontaneously without considering the longer term.
  • Cannot commit to paying any credit card balances off by the end of the month.

The facts are that if you cannot take control of your spending and budget wisely, a credit card can become a burden because it allows you to buy things now and pay for them in the future. This makes it very easy to rack up large amounts of debt that then attract a high interest rate.

It is not uncommon for people that have credit cards to be completely unaware of how much they owe until they receive their monthly statement. Even then the most highlighted figure on most credit card bills is the minimum monthly payment. This amount is the minimum that you can pay and people naturally pay this amount. This is also the amount that is most advantageous to the credit card company because it keeps the debt earning the highest amount of interest for the longest time.

Reasons to Consider Using a Credit Card

  • Builds a credit history.
  • Tracks spending and allows you to look through your purchases making budgeting easier.
  • Has protection if it is lost or stolen unlike cash.
  • Is convenient to use.
  • May have special insurance, discount or bonus offers.
  • May offer extended warranties on purchased items.
  • May have a rewards program that uses points or cash back on purchases.
  • Allows you to charge back fraudulent, not received or not as described purchases.

The credit card is a tool and just like a hammer when used responsibly and wisely a credit card can help you build a strong financial future. Credit is a vital part of many people’s lives and having a good credit history can help to reduce borrowing costs when we are looking to buy a house or a car. This means keeping our credit file clean with no missed payments, no late charges and a strong record of paying back debt. Using a credit card and paying it off monthly allows you to make a single payment for all of your purchases and builds up this positive credit history.

When you use a credit card each purchase is recorded and is immediately available online. You can track your purchases and payments and see that you are staying within your budget. Unlike cash if your credit card is lost or stolen you can easily get a new card quickly without losing anything. Carrying large amounts of cash can be a nerve racking experience and with a credit card it gives you secure access to your funds without having to make yourself a target for robbery.

You can use a credit card just about anywhere today from a convenience store to a gas station and a restaurant to a grocery store. A quick swipe and the payment is made and by selecting the best credit card offer you can be rewarded for every purchase you make. There are cash back offers and point systems that allow you to earn simply by using your card.

Other cards have benefits such as extended warranties and insurance that covers certain purchases adding value. These are all great reasons to use a card if you were going to make the purchase anyway. The seller is paying a small fee for using the credit card system and you can take advantage of the financial institutions wanting you to use a credit card by maximizing the benefits and paying them off before interest is charged.

Filed Under: Credit Card Tagged With: Credit Card, credit card debt, Credit Card Usage, credit card use, How to Use a Credit Card Wisely

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