How to Use a Credit Card Smartly

Responsible use of a credit card is critical for maximizing the benefits of having one. By strategically using your credit card, you can build your credit, earn rewards, and track your cash flow. The credit card company earns a small fee every time you use the card. They collect this fee from stores each time you use the card, which is used to fund the rewards programs. Here are some tips to help you get the most out of your card.

Paying off your balance in full each month

You may not have considered it, but paying off your credit card balance in full each month can actually improve your credit score. Not only will you avoid paying interest, but you will also keep your credit utilization ratio low. Credit utilization is calculated as the percentage of debt to total credit limit. Low credit utilization scores will attract credit card issuers who will be more inclined to increase your credit limit if you show responsibility.

A credit card statement will show your current balance when you make a purchase. If you don’t pay your balance in full by the due date, it will carry over to the next billing cycle and accrue interest. Not only is this practice responsible, but it can also save you money over time. Aside from saving money, carrying a balance can also negatively affect your credit score. So, when using credit cards, try to use less than 30% of your total available credit.

Avoiding late fees

There are ways to avoid late fees when using a credit card, but most people do not realize they can appeal late fees. In fact, many issuers will waive late fees when their customers have a good payment history. To get your late fee waived, call the credit card company and explain your situation. You should also explain to them why you are late in paying your bill, and why you need some flexibility.

It is easy to calculate late fees, as you can add up the fees over several billing cycles. You also need to consider reinstatement fees, in case you have lost a reward. And don’t forget interest! Late fees can include interest from both your late fee and the credit card balance itself. This means that if you miss a payment, you may end up paying more than you planned, so make sure to pay all of your bills on time.

Using a credit card if you’re going to overspend

Stop using your credit or debit card if you know you’re going to overspend. Instead, leave your card at home and only carry cash you need for the day. To avoid the temptation of overspending, freeze your credit or debit card in a freezer and decide if you really need to make a purchase when it’s thawed. Stop using credit cards for everyday purchases.

Another common mistake is to open more than one credit card. Having multiple cards can make it easier to spend than you realize. Having multiple credit cards will give you more flexibility to spend, but it will also require you to be careful and manage your balances. Most people can manage a single card easily and avoid overspending. Besides, if you have a low credit utilization ratio, you’ll be able to earn rewards from your purchases.

Using a credit card to pay down debt

If you want to make great progress on your debt, using a credit card to pay down debt is a good choice. While minimum payments are important, they will only make the debt go slower, and the interest you accumulate will keep you from making much progress. Make big monthly payments to blast through your debt faster. You can also increase the payments gradually over time, by reducing other expenses and re-directing them toward your debt.

It’s easier to pay down debt by using only one credit card, so start by paying off the account with the lowest interest rate first. That way, you’ll have more money available for other needs and activities. On the other hand, you’ll end up paying more interest on the balance that you started with. This can spiral your debt out of control. Make sure to set up a budget that can handle the size of the payment each month.

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