Credit cards can be valuable financial tools. They can also be a gateway to debt. Learn how to manage your credit cards like a pro.
Benefits of Credit Cards
Credit cards can be one of the safest, most secure ways to pay for things you need, especially online. In our modern world, they are almost a necessary convenience. They can even help you cover emergency expenses, though if you are not able to quickly pay back what you charge, you will end up paying additional money in interest.
Credit cards are also a great way to build your credit history, provided you use them wisely. By making purchases on your credit card and then paying off what you owe, you are showing financial responsibility and establishing a good credit score . Using credit cards strategically is part of solid personal money management.
Dangers of Credit Cards
However, if you miss payments or start to accumulate a lot of debt on your credit cards, it can be very damaging for your credit score and for your finances in general.
Credit cards make it easy to spend more money than you safely can. Once again, if you cannot pay what you owe on the card each month, you can end up paying a lot of extra money in interest. And if you routinely spend more than you make, you can trap yourself in a cycle of credit card debt.
10 Tips to Help You Manage Your Credit Cards
1. Consider APR When Choosing a Card. A credit card is a way to borrow money. When you use it, you are not spending your own money. You are borrowing money you will have to pay back. APR refers to the Annual Percentage Rate. It tells you how much you pay in interest and fees each year to borrow money. The higher the APR, the more it costs for you to borrow money.
If you pay off your credit card every month, you may not need to worry about the APR. You generally owe interest only on a balance (what you owe) that you carry on the card from month to month. But even with the best intentions, you may find yourself having to carry a balance from time to time. Picking a card with a lower APR can save you money.
2. Make Payments on Time. Missing payments can cost you money in late fees and additional interest. It is also a surefire way to hurt your credit score. Your credit score is important when you want to rent an apartment, take out an auto or home loan, or even when you are applying to jobs.
3. Avoid Carrying a High Balance. Just because you have a high credit limit does not mean it is a good idea to borrow that much money. You never want to max out your credit cards. Doing so will hurt your credit score, which is calculated in part on how low your debt is compared to your available credit. You will probably also have trouble paying back the money you have borrowed, which can lead to ongoing debt. And, once again, you will pay interest on any balance that is carried over from one month to the next.
4. Have a Plan for How You’ll Pay. You should always have a plan to pay for purchases you make. A credit card makes it easy to buy now and worry about paying later. But you will eventually have to pay. You don’t want to end up stuck in debt or routinely paying large amounts of interest. Consider saving up for large purchases before making them. If you find yourself having to make a large purchase on your card, make a budget to help you plan how to pay off the debt in a timely manner.
5. Set Rules for Yourself and Stick to Them. Credit cards require self-discipline. Having pre-established rules for yourself can help control your spending. For example, you might only use your credit cards for certain types of purchases, or for purchases over a certain amount of dollars. And it’s best to have a monthly budget so you know how much money you have available to spend and then keep yourself within that amount.
6. Review Credit Card Statements. It might feel tedious, but check your credit card statements every month to make sure all your charges are valid. Mistakes happen. You might find you’ve been charged twice for something. Or you might have been charged more than something was supposed to cost. You may even find fraudulent charges. Call your credit card company to dispute any erroneous or suspicious charges.
7. Think Carefully Before Opening New Cards. Having multiple credit cards is not necessarily a bad thing. In fact, it can be beneficial. It gives you a backup card in case one is frozen by your bank because they suspect suspicious activity. And multiple cards will increase your available credit which, as long as you keep the balance on the cards low, will be good for your credit score.
However, opening multiple cards in quick succession or frequently opening cards and transferring balances can hurt your credit score. You might think you’ll just cancel the card later, but that can hurt your credit score too. More cards also make it more difficult to keep track of when payments are due, making you more likely to miss a payment.
8. Be Careful When Transferring Balances. It may be tempting to transfer all the money owed on multiple cards to one credit card. Doing so puts it all in one place and may seem convenient. However, it also causes you to carry a high balance on that card relative to your credit limit, which, as discussed above, can hurt your credit score.
9. Protect Your Credit Card Information. Though credit cards are one of the safest ways to make purchases today, fraud does happen. Do not make purchases through links in emails or texts that are unsolicited. Check URLs carefully when purchasing online to make sure the website is legitimate. If someone calls you on the phone and claims to be a government agency or your bank and requests your credit card number, do not give it to them. Hang up and call the agency or bank directly. You can find more tips on protecting yourself from fraud and scams here.
10. Cancel Cards Carefully. There are good reasons to cancel credit cards, such as annual fees that are not outweighed by benefits or if you are not able to use the card responsibly. But keep in mind that doing so probably will impact your credit score, at least for a while. That’s because canceling a card reduces your overall available credit. You also want to consider how long you have had a card before choosing whether to cancel. The longer the credit history, the better for your credit score.
When you do cancel a card, make sure the balance is paid off or transferred. Canceling the card does not cancel the balance, and you will still be charged interest on what you owe. Redeem any rewards you may have before closing the account, or you may be forced to forfeit them. Call your credit card company to officially cancel the card. Simply not using the card anymore does not mean it is canceled. Check your credit report to ensure the information about the closed account is accurate. Then destroy the card with scissors or a shredder.
Heritage Bank offers credit cards with competitive rates, the benefits you expect from a national bank card, and the service and local decision-making you expect from us. Explore credit card opportunities exclusively for Heritage Bank customers.
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