Using Credit Cards Wisely

Is anyone born with knowledge of how to use credit cards ? Definitely not. Still, it’s important to learn the rules of the credit card game – preferably before one starts playing.  I am writing a few DO’s and Don’ts for credit card users. These are definitely not all but some useful tips which could help one to maximize the output from the credit card and at same time preventing him from accumulating debts.

Do’s

• Ensure that you purchase things you need and not the one’s you ‘want’. There is a difference between need and want and that has to be honored. Often wants are way beyond our budget and credit card is used to buy those wants, which are way beyond the budget.

• Make sure you pay the credit card dues on time. I used to forget the due date and as a result on several occasions have paid late fees. Then I started setting reminders in my mobile/emails or any other convenient tool. This helped me to get rid of the problem of forgetting the due date.

• Stay within 40-50% of the limit on your credit card. A large part of your credit score considers the amount of debt you have. Keeping your balances low helps you maintain a good credit score. Not only that, lower balances are easier to manage than those that are higher.

• Negotiate a lower interest rate with your credit card company. Your interest rate determines how much you pay for carrying a balance on your credit card. Evaluate the interest rate on your credit card periodically to be sure you are getting the best deal possible.

Don't

• Credit card should not be used to make everyday purchases like food, clothing, and gas. Using your credit card as a substitute for cash is a habit that can quickly lead to debt. For ordinary purchases, use the cash in your wallet or debit card instead.

• Do not get into the habit of making only the minimum payments. Making only the minimum payment each month increases the debt. Also most of the card companies charge interest on the remaining amount and new purchase from day 1. So if you do not pay the full amount, you may lose the advantage of grace period on your new purchases.

• Do not close out a credit card without knowing how your credit will be impacted. Avoid closing cards that still have a balance or those that make up a significant amount of your credit history. This may impact your credit score.