Using Your Credit Cards Wisely

A credit card is a wonderfully convenient way to pay for nearly anything. It can be a handy tool to help you track your spending and manage your budget, and offers more protection than if you paid in cash.

A credit card is also the downfall for many consumers who don’t grasp the consequences of their unwise credit habits until it’s too late. To get the most from your credit cards, be sure to use that credit wisely:

Understand the terms and conditions of your credit card.
Read your cardholder agreement carefully and understand the fine print. It will give you important information about your credit contract such as annual fees, grace period, any fees for certain types of transactions, the way they compute your balance for interest charges, and the APRs for purchases, cash advances, and default. You’ll also find conditions of any benefits the card offers such as how they compute rewards, extended warranties for purchases, car rental insurance, and travel insurance, etc.

If you don’t like the terms of your credit card agreement, don’t use the card and cancel your account right away. Using the card for anything will bind you to the contract until your balance is paid off and you can close your account.

Live within your means.
Avoid thinking of your available credit as additional spending power - it is not income, it is a debt. Treat your credit limit as a pre-approved loan on a piece of plastic. It sounds silly to take out a loan and pay interest on things like dinners, movies, and shopping but that’s what you’re doing if you use credit for non-essentials and don’t pay it off on time each month.

We all like to enjoy evenings out, entertainment, and a little shopping - but never charge more than you can pay in full each month. This will help ensure you live within your means while avoiding credit card interest charges.

Use your credit card to help you track your expenses.
Study your credit card statement every month, and know what you're using credit for. A credit card is a great way to see at-a-glance what you’re spending each month on gas, groceries, utilities, and entertainment.

If you can't pay all your bills and your credit card balance, in full, each month, it's time to draw up a new budget. You may find you have to do some cutting back to ensure you are living within your means.

Avoid using your credit card for cash advances.
A credit card is a great way to pay for purchases because you are given a grace period before interest begins to accrue, and if you pay it off by the due date, there is no interest charge. But cash advances work differently. Interest begin to accrue immediately when you take a cash advance, and the rate is likely quite a bit higher than the purchase APR. There are also likely to be transaction fees, typically a percentage of the cash advance. A credit card is typically a very expensive way to get cash; it should only be used if you have a real emergency.

If you feel you need cash on a regular basis, consider applying for a personal line-of-credit at your bank or credit union. A line-of-credit is a revolving account that works similar to a credit card account, and their rates are usually very competitive when compared to credit card cash advance rates.

Ask your cardholder for a better deal.
If you've had your account open for over a year or so, never went over your credit limit, and always paid your bill on time, your credit card issuer wants to keep your business. They value you if you've kept your account in good standing and have shown that you're responsible with credit.

You are being bombarded with better deals from other credit card issuers due to your responsible credit use? Let your current card issuers know that, they may be willing to reduce your APR or do away with an annual fee. They may agree to add a rewards program, or throw in platinum services, just for the asking. It won't hurt to try, and it could save you money or add some benefits to your card.