Understanding and Managing Credit Cards to Your Financial Advantage

If you are still using cash or checks to pay your bills and everyday expenses, there could be a smarter way to manage your finances. With incentives ranging from reward points to cash back deals and low interest rates, using a credit card can help you to improve, organize and manage your money effectively.

It’s hardly surprising that rising national debt has given credit cards a bad name, however, so long as you have decent credit scores, can find a credit card which meets your needs and take steps to control their use, credit cards can in fact be used to aid financial planning. There are numerous credit cards to choose from so you will want to research the best offers to gain a clear understanding of the cards that might benefit you.

Begin by establishing good financial habits to keep debts under control and set some goals — such as improving your credit score or earning miles for a special vacation — this will help ensure your credit card is working hard for you.

Good Habits for Successful Credit Card Management

Money management is a skill best learned over time; mistakes will happen and change won’t happen overnight, but you can whip your credit and finances into shape with a few simple tips.

Acquire a Credit Report to Better Understand Your Credit Score

What you don’t know can hurt you when it comes to your credit score. Everyone is entitled to one free copy of their personal credit report every 12 months from each of the three credit reporting agencies: Equifax, Experian and TransUnion.

This report will provide you with your current credit score(s) as well as details about each line of credit you have available or closed, payment history, any negative or positive remarks form lenders, and more. Make a habit of reviewing your report to ensure all the information is correct and dispute any incorrect information. Paying attention to your credit before you need it ensures fewer surprises when you apply for a loan or credit.

Respect Your Credit and Use it Wisely

Do you really want to pay interest on a $5 cup of coffee for the next several years? It is important to remember when using credit cards that you have a plan for paying off everything that you purchase. If you are not in a position to pay off your credit card bills each month you may want to rethink your credit card usage and forgo making frivolous credit card purchases.

Ideally, you only buy what you can pay back in full at the end of each month. Sometimes your income may flow annually or quarterly and it’s a necessity to make the minimum payment for a few months; this is fine, as long as you have money coming in to pay your account off. If you are not able to pay the full amount and continue making only the minimum payment, you may find it takes years and cost a lot more money.

Keep Track of Accounts and Statements

Read every statement to ensure every purchase is accurate and that you are aware of the exact due dates for payments. Whether it’s your car loan, home mortgage or credit card bill, failure to pay on time results in late fees, negative remarks on your credit report and potentially increased interest rates. Make a habit of paying bills early or at least on time; set-up a secured automatic payment or mail all checks 7 days in advance.

Don’t Neglect Your Savings

Keep saving for emergencies. Your savings account should not be used to pay off your credit card debt, except in an emergency situation. If you find yourself unable to both pay off credit card bills each month and contribute to your savings, then perhaps it’s time to consider your spending habits.

Make Your Credit Cards Work for You

Keeping or improving your credit score isn’t very complicated, but it does require a bit of research and self-control. In return, you may be able to save hundreds or thousands of dollars in the future.

Boost your Credit Score

For those who are ready to cut up their cards to improve their credit score, it may sound strange to hear that keeping your credit card open may actually improve your credit score, but it’s true! As long as you pay off the balance in full each month, managing credit wisely and keeping a long running credit history will show creditors you are reliable and responsible.

You may be able to (slowly) improve your credit score by maintaining that credit account you rarely use to demonstrate that you are willing to use only a fraction of the credit available to you. Keep the account active by making one or two small purchases and paying them off each month.

This is call credit utilization. Ideally credit reporting agencies are looking to see that you only use 30% of the total credit offered by lenders and credit card companies. For instance, if you have a credit limit of $1000 you will want to charge no more than $300 to the card.

Reap Rewards and Other Exclusive Offers from Credit Cards

There are also a number of ways to earn something of value back for using credit cards. The better your credit score the better these offer will be, just be sure to comparison shop for the credit card rewards which best fit your personal financial situation and goals.

Cash Back

Cash back for purchases are a great way to make your credit card earn its keep. Use this type of card for daily expenses such as gas, food and sundries; this could translate into a considerable sum of money on each statement. In order to fully reap cash back rewards, you must repay the card in full each month to avoid interest charges that would swallow up the cash bonus.

Lower Interest Payments with 0% on Balance Transfers

Who doesn’t want to pay 0% or 2% or 3% interest for a few months when currently you are paying 12% or 15% or 20%? If you are carrying balances or making the minimum payment on credit cards with high interest rates, moving your balance from one credit card to another card with lower interest is a simple and immediately effective way to reduce your debts. Once the interest has been reduced, you can focus on paying down the actual balance.

Be sure to fully read and understand the terms and conditions of a credit card offering 0% interest or super-low fees on balance transfers. Some cards come with low introductory interest rates which revert to high terms once the interest-free period ends.

Cash Back, Airline Miles and Other Incentives

Picking a card with a good incentives can be extremely credit wise. If your credit score qualifies you for free airline miles, hotel upgrades, gift certificates from retailers or the like, it can save you hundreds or even thousands of dollars you would normally have to save to make a special purchase.

Credit Card Insurance and Identity Theft Protection

Normally you might pay for these protections, however, good credit scores can qualify you for credit cards offering free insurance and protection. For credit cards with high limits (or no limits), these protections are essential for helping you return broken items or even covering the cost to track down identity thieves.

Keep Track of Tax Deductible Donations to Charities

Most of us reduce our tax liability by making tax-deductible donations each year. Opening a credit card linking to the charity of your choice could help you plan your donations in a far more effective way. In addition to being able to track your donations through your statements, you may also be eligible for special rewards or incentives from the charitable organization.

Using Credit Wisely Will Pay Off – Credit Card Debt Will NOT

Becoming a savvy credit card user may not be the road to riches, however, it certainly can save you thousands of dollars in interest, fees or special purchases. Be credit wise to keep debt at bay and open yourself to new financial opportunities. Speak with a trusted financial advisor to review your current credit report and make smart decisions on opening, closing, or using your credit cards to your advantage.

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