Are You Using Your Credit Card Responsibly?

Credit cards are amazing products, but like any financial instrument they can be dangerous if not used responsibly. But what comprises responsible use?

First, credit card users must read and understand the terms and conditions of their credit cards. They should know what their interest rate is on purchases, balance transfers, and cash advances. But just knowing the interest rate isn’t sufficient, responsible credit card users should know how credit card interest is calculated. They should also be aware of any fees such as annual fees, cash advance fees, late payment fees, and foreign transaction fees. Next, credit card holders should know what day of the month their statement closes and when their payment is due.

Once a card user is aware of the terms of his or her card, the next step is complying with them. Bills should always be thoroughly reviewed for erroneous or fraudulent charges. Most importantly, credit card payments should always be made on time.

But responsible use is more than just understanding and complying with the bank’s terms and conditions. Too many cardholders will incur unsustainable debt and only make the minimum payment each month. As their debt rises, the minimum payment will increase until it alone become unaffordable. Getting a 0% APR credit card for balance transfers can help, but when the minimum payment becomes outside of the reach of cardholders, default is imminent.

So therefore, responsible card use means monitoring and controlling purchases.  Debt levels should stay low, and cardholders should ideally be able to pay their entire balance in full every month. Even when credit card holders must carry a balance, care should be taken to ensure that card users can afford to pay much more than the minimum balance, and that these payments fit into an overall budget. As a general rule, credit experts advise that cardholders should never have to make payments that exceed 28% of their monthly gross income.

Ultimately, those who find themselves in perpetual credit card debt are not using these products as responsibly as they can. At the same time, those who are having difficulty making their minimum payment are clearly having problems managing their credit cards. By taking the time to understand the terms of these products, and taking steps towards responsible usage, credit cards can be a helpful tool rather than an ever-present burden.