If you just turned eighteen or are just taking out your first credit card, firstly, I would like to welcome you to the world of adulthood, and secondly, I’d like to advise you to be careful with it. Credit cards are very helpful financial tools that can get you out of a dicey situation, but you can also quickly rake up a massive credit score with them. So, before going on a spending spree with your new credit card, be mindful that this may land you in hot waters and will have a considerable amount to pay off, and this accrues interest over time. So, come along with us and learn how you can use your credit card smartly and in a way that won’t make you have to file for bankruptcy.
What is a credit card?
It is a thin piece of rectangular plastic issued by either a bank, financial institution, or service company. It allows its owners to borrow funds that they don’t necessarily have to spend on whatever they want and is a widely accepted payment method around the world. This is why the cashiers always ask you if you’ll pay with debit or credit in the US. However, you don’t just get a credit card and can spend the money willy-nilly; prior to receiving the card, you are made to sign a contract, and the terms and regulations stipulate the interest rate that you have to pay on the amount of money you borrow, and additional charges you had agreed to pay when you signed the contract. Let’s not lie here; I know most of you don’t read the agreement and just sign it. You could be selling your soul to the devil, and you wouldn’t know it, and I am not one to talk because I do this too. But as the saying goes; do what I say and not what I do. Having said this, you should use your credit card but should be careful with it, and always remember, don’t spend more than you can pay off.
Tips for using a credit card.
1. Stay under 30% of your maximum credit limit
This smart way of using your credit card keeps your finances in the green and allows you the chance to repay all the money you borrowed on time. Think of the credit card as a helper and not another amount of money that you can spend the totality of. By keeping it under 30%, you will keep your credit score healthy. Always make a budget on your spending and make a budget for your credit cards too, and don’t go over the 30% marks unless it is an emergency.
2. Pay it off every month
To avoid paying any interest on your credit cards, you should pay the total amount you owe by the end of each billing cycle, usually by the end of each month. As mentioned earlier, we should resist the temptation of spending more than we can pay because this will make you have bad credit and have difficulty getting a loan further down the line. If you can pay it off each month, you will enjoy the benefits of having a credit card without the negative repercussion.
3. Never skip a payment
This builds off the last one and is something that you should never do. It is a cardinal rule in the credit card game: pay your bill every month even if it isn’t the total amount. The inability to do so can land you in trouble as you will be issued a late fee, penalty interest rates because of your inability to pay back that specific month, and it will also have a negative impact on your credit score.
4. Don’t use your cards for wants but for needs.
Frivolous and impulse buying can lead you to debt, especially if you don’t follow the first three rules on our list. Use your credit card in case of an emergency and don’t spend money that you can’t repay; think of it as a debit account; once you have no money, you can’t use it. So be conscientious about how you use it. If you want to use your credit card, refer to the other three tips on the list.
Remember, using a credit card should be a privilege, and you should not use it for any unnecessary spending. Sound off in the comment section below and tell us if you learnt anything new today.