Do you know how to use your credit card wisely?
In our world, everybody owns a credit card because if you use them for their purpose, they’re great. They provide convenience and are a fantastic tool to collect rewards like cash back on purchases and travel advantages.
However, if you carry a load for any time, these “rewards” can quickly become costly due to credit cards’ high interest rates. Fortunately, the team from Frugal Americans spoke with a few financial professionals to obtain their advice on making the most of our credit cards so that we may truly appreciate and benefit from them.
Without further ado, scroll down to see all the strategies that will help you use your credit card wisely.
Always start with a budget
According to a recent survey, around 30% of Americans don’t think they need a budget. If you want to be a frugal person who has everything in order and uses your credit card wisely, you might want to rethink your monthly budget.
Figuring out how much you can afford to spend each month is the first step toward managing this tip. Try to sort your budget out by category. This will help you handle your expenses better and avoid going overboard.
Keep an eye on your spending
Another useful tip after you establish your budget on how to use your credit card wisely is to be careful about how much you are spending. Tracking how much you spend is a crucial next step after making a budget. Don’t panic if, during the first two months, you spend more than you had planned; simply make sure you take note of what happened and learn from the mistakes in the following months.
To truly optimize your budget, carefully assess each category, especially those with unpredictable expenses like monthly groceries and fuel costs. Furthermore, be mindful of potential fraud or any unauthorized payments! Having a credit card is nice and all, but that doesn’t mean you’re 100% safe from hackers.
So if by any chance you notice a purchase you don’t recognize, please get in touch with the fraud department of your credit card company as soon as possible. If you have fallen victim to fraud, rest assured that a thorough investigation will be conducted to address the issue. Additionally, they will provide you with a replacement card closing the old one and preventing any further unauthorized purchases.
Know your benefits
If you want to use your credit card wisely you must know from the beginning what are your benefits. For instance, there will be restrictions on your welcome bonus. During the first three months of your card membership, you could have to charge $3,000 on your card., and you won’t receive your bonus if you don’t meet the spending requirements.
To get the most out of your credit card’s worth if you have a loyalty point-earning credit card, be sure you know how the program works. If you are earning travel points, for instance, you will probably get a greater return by using them for travel rather than gift cards.
Add the yearly expense of major purchases
Everybody is super hyped about major discounts they can score on Black Friday or anytime after the major holidays, and because of that, it’s also important to use your credit card wisely when making these purchases.
If, for example, you are thinking of spending $1,000 with your credit card at a rate of 22% APR (average, according to the Federal Reserve), add the approximate interest you would have to pay if you had to wait a year to pay it off due to an emergency.
Remember that everything you pay with this card is basically a loan, and before buying something, think if it’s worth it or not.
Don’t forget to set payment reminders!
You can set up alerts via SMS, email, or push notifications on your mobile app with the majority of major credit card issuers. These include balance restrictions, payment deadlines, warnings for significant transactions, and more. Budget-conscious cardholders are aware of how effective they are in tracking their card usage. They also make sure you never incur late fees or interest by making sure you pay down your debt on time.
Read the terms on your credit card
There is a minimum 21-day interest-free term on all credit cards. Your statement will include your current amount and the date of your payment when it comes. In theory, all you have to do is pay the minimal amount indicated on your account. But if you do so, you might pay some really high interest rates and see a rise in your credit usage percentage.
Read every vital information on your credit card; only then will you be able to optimize its benefits and prevent unwanted expenses.
Take advantage of 0% APR offers (but use them responsibly)
You are probably aware of what APR is, right? Well, if you pay off the debt before the promotional period expires, offers with 0% APR on purchases and balance transfers are a great way to save money. That’s awesome indeed! But even if you have this amazing opportunity, if you want to be more frugal, you still need to go over the list of what you want to buy versus what would be an impulse purchase.
Steer clear of cash advances
Experts advise us to avoid using credit cards for cash withdrawals unless you need it ASAP. Why? Because these cash advances usually come with high fees and interest rates. So unless it’s urgent, avoid doing this operation.
Treat your credit card like cash
You’ve heard it a million times: pay off your credit card each month to avoid penalties. Easier said than done, heh? However, frugal people manage to do it. Whenever you take out your credit card to make a transaction, you must apply all of the following strategies: Prioritize needs above wants, understand your cash flow, and most importantly, stick to your budget.
Create a routine of checking your balance every day to see how much you’re spending, the same as you do with your cash purchases. When using a credit card, charges might become invisible and unnoticed. To make things feel clearer, especially during times when you could be spending significantly more than usual, always get a receipt for your regular transactions.
Choose the type of credit card that works for you
Last but not least, it is important to know what works best for you. If you’re not sure, then think about your spending habits and ask yourself, “May I benefit from earning cash back on groceries?” or: “I travel a lot, so hotel discounts are very important to me!”
You can decide on the card type along with potential benefits that best suit your needs by answering these questions. Compare credit cards offered by banks or card issuers to get your study started. Use a tool for comparing cards if you’re unsure, or ask an expert. They are always kind enough to help us out!
Are you looking for a cardholder with RFID blocking? With 11 card slots, an internal money clip for banknotes, and one ID window, this front pocket wallet is perfect for frequent card users. Its clever arrangement places functionality for daily usage on the front side and additional bulk capabilities on the interior for larger cards.
After establishing the essential knowledge you need before getting a credit card, let us explore certain expenses that professionals suggest avoiding using the cards for.
Taxes
When most of us hear the word “taxes,” it drives us crazy. And with a reason! Uncle Sam seems to be more greedy with each passing year. But let’s not talk about this now. There will be another article for this, for sure.
Now, experts advise us to never pay our taxes with a credit card. Why? Well, even if it’s possible and completely legal, you shouldn’t do it. Credit card payments aren’t free, contrary to using a bank account transfer. In the end, you’ll pay a charge equal to a portion of your taxes. And nobody wants that!
This cost could vary from 1.87% to 3.93%, depending on the payment company you use. However, the IRS will work with you to arrange a payment plan at a far lower interest rate than what your credit card would charge you if you owe them money.
Medical expenses
Sure, it may seem like a good decision in the first place, especially if the bill has a skyrocketing price, but experts advise us not to do that. And there is a good explanation for this! It can cost you double or more if, by any chance, you’re not able to pay the whole sum right away.
Instead of paying the medical bills with your credit card, try to save some money in an emergency fund for unexpected expenses. It’s better if you save the money in cash so you avoid any other things if you save them on the card.
Rent and/or mortgage
Use your credit card wisely and never pay your mortgage or your rent with it! While it may seem like a wonderful deal and a super easy way to get more reward points, there’s normally a 2% to 3% processing charge that eliminates all of the significance. When making this kind of transaction, be sure you are aware of all the extra fees that come with using a credit card.
However, if you wish to fulfill a minimum spending requirement on a new credit card to be eligible for your welcome bonus, then you can pay your mortgage or your rent with the credit card. Remember to check that the bonus is sufficient to cover the processing fees and that you have the funds available to pay off the remaining amount before interest begins to rise.
An impulse and costly purchase
Yes, it’s tempting to buy that smart TV or that fancy couch, but how about not? Or at least don’t pay it with your credit card. Of course, you may get quite a substantial reward, but experts recommend not to do that unless you can pay off the balance in less than one month; otherwise, you will end up with no credit available on the card.
Better you start saving money to purchase what you want instead of maxing out the credit card on large buys.
Small “guilty-pleasure” purchases
We already established that large impulse buys aren’t good for your budget but for your credit card as well. Oh well, small impulse splurges can do the same damage. Taking out your credit card to purchase a sandwich or a cup of coffee at the deli is an easy way to make purchases. But don’t fall into this trap no matter how tempting it may seem!
Sure, you might get benefits like free money or airline miles based on whatever credit card—cashback or rewards—you use for your transactions. On the other hand, if you use your credit card for every small purchase, it might become out of control over time. The more you owe, the more difficult it will be to pay it off.
Use your credit card wisely, and instead of paying with it for small items, consider paying with cash. If you have to take out your wallet every time you make a purchase, you’ll probably spend more carefully and adhere to your budget in addition to preventing credit card debt.
Household expenses
Another expense you should never pay with your credit card is the household bills. However, many folks do that mostly because of the rewards. You may be offered free credit card bill payment online by your water and electricity companies, which will encourage you to link your card to the accounts to receive points.
Additionally, if your service provider permits you to utilize credit card payments for automated payments, that’s one less bill you’ll need to remember to pay on time. And this for sure sounds very convenient! However, the dangers are frequently bigger than any rewards.
Buying a car
Not many people can afford to buy a new car with cash, and it’s totally understandable, especially with this awful economy. However, this is another payment you shouldn’t be making with your credit card. Yes, most likely you will receive a ton of rewarding points, but soon after the payment, this happiness will be blinded by the big interest charges.
If you don’t have the money to buy a new vehicle, you might want to put off the purchase or look for something more affordable. After all, there is no need to rush things.
College tuition
And we finally got to the last payment, which is college tuition, which is again a very expensive one, and many people are tempted to use their credit card to cover it. But is this a really good idea? Experts say no. Even if your child or your grandchild is having issues paying the tuition on time, it’s still not a good idea to apply for the help of a credit card.
Better inform about student loans, work-study programs, or scholarships that can help you manage the cost of tuition.
Conclusion:
Credit cards are awesome, for sure, but if we don’t know how to use them wisely, they will make deep holes in our budgets. Remember the golden rules of using credit cards: pay all your bills on time, the balance every month, and of course, spend only the amount you can afford to put back!
However, this should be solely your decision! What works for others may not be good for you, and vice versa. Choose the right type of credit card for you since applying for a credit card is a very important step that will mess with your budget if you don’t use it wisely.
Follow our tips that will help you manage your card responsibly and make the most of its benefits without getting into debt! How do you use your credit card? Tell us in the comments section! Hey there! If you have any feedback for us or some advice for our readers, feel free to share it below. We always love hearing from you. Until next time!
Looking for more frugal tips? Here’s another useful article you can put a pin on for later Stretching Your Dollar: Living on a $500 Monthly Budget.
