Using Credit Cards to Your Advantage

We’ve all heard the horror stories of using credit cards and the resulting credit card debt that seems to grow and reproduce when you’re not looking – but there are actually many advantages to using credit cards.  When used correctly, credit cards can offer interest and fee free spending power that earns you cash back or other rewards.  Here are some tips for using credit cards to your advantage, instead of letting them rule your life:

Charge Only What You Can Afford to Pay Back

This seems like common sense, but the trick is to charge only what you can afford to pay back in full when your credit card statement comes.  The mistake many people make is using credit cards to the point where they can still afford the monthly minimum payment, rather than thinking about what they can afford to pay back when the statement arrives.  You do not have to carry a balance from month to month and to put credit cards to use in your favor you need to get in the habit of spending only what you can afford to pay back when you get the statement.  This is how you avoid finance charges and interest without using a 0% APR credit card.

Use a Checkbook Register to Track Credit Card Spending

Instead of using your card in a carefree manner all month long and then getting a surprise when your credit card statement arrives, use a checkbook register to keep track of your spending the same way you would if you were writing checks or swiping your debit card.  Know how much you can afford to send in to pay it off, and make sure you don’t spend more than that amount. You can make life even easier by using a free budgeting software like Mint, using the Blueprint feature on Chase Slate or buying Quicken. Checking your credit card balance online regularly can also help you keep a lid on spending so you can minimize interest and maximize what you earn with rewards credit cards.

Short Term Credit Card Use Sometimes Makes Sense

Sometimes you need or want a purchase which is going to cost a little more than you can pay back all at once.  Let’s say your television breaks, and you decide this is the time to upgrade to the new 60” flat panel television you’ve been dreaming of, and it’s going to cost $1,500.  Even on a credit card with 18% interest, if you pay this back within 4 months, you’re only paying around $60 in fees and interest (if you don’t send payments in late) which is not too bad.  Make the same purchase and pay it back over two years and suddenly your television costs $300 more, though.

When considering larger purchases that will have to be spread out, prepare your budget to pay it off in the shortest amount of time and avoid using additional credit until it’s paid in full. If you’ve already made one of these purchases, consider getting a 0% balance transfer credit card so you can repay your debt without incurring more interest.