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Credit card spending

Using a Credit Card Wisely

There are many benefits to using a credit card. If done responsibly, it helps build your credit rating, provides security and convenience when shopping, and – depending on which card you have – you may even earn some rewards. However, credit cards also make it incredibly easy to rack up significant debt. Because many cards charge high interest rates, if you spend too much or if you’re not able to pay off your balance quickly, you could wind up in serious debt trouble.

Credit cards make it very easy to spend. You don’t have to head to the bank or count out cash to make a purchase. All you have to do is swipe, insert, tap, or click. If you’re not careful, you can quickly overspend without even noticing it.

Here are some tips for using credit responsibly.

Keep Track of your Purchases

As mentioned, it’s very easy to overspend when you’re making purchases with a credit card. The problem with tapping, swiping, or clicking to buy things is that it’s very easy to lose track of how much you’ve spent. This can be a problem because, if you’re not tracking, it’s very easy to overspend and get into debt trouble.

To avoid this, make sure you have a record of what you’re spending. Depending on the financial institution that provides your credit card, you may be able to track your transactions online or through an app. However, the list might not be in real time, so keep this in mind.

Another option is to track what you spend manually using a pen and paper, a spreadsheet, a note on your phone, or whatever option works best for you.

Make Payments on Time

If you miss a payment, you’ll likely have to pay a penalty. You’ll also be responsible for paying additional interest on the outstanding balance. Missing a payment also hurts your credit rating. Creditors want to see consistency and a history of making payments on time. Even missing one payment can hurt your credit score and make it more difficult for you to get loans in the future. This can be costly as your interest rate will be a lot higher if you have a bad credit score.

Keep track of when your credit card bills are due and make sure you pay on time.

Pay Off Balances as Quickly as Possible

You might see the “minimum balance” amount on your credit card statement and be tempted to only pay that amount. However, while paying just the minimum might make your creditors happy (since you won’t miss a payment, so they won’t charge you a penalty), it will also cost you a lot of money. That’s because credit cards often charge very high interest rates. The larger the balance you carry, the more you’ll pay in interest. If you only pay the minimum, not only will it cost a lot, but it will also take you much longer to pay off your debt.

The best practice to follow is to always pay off your balance in full each month. This will save you from interest charges and help you live responsibly. However, if you’re not able to pay off the full balance, pay as much as you can afford and come up with a plan for how you’re going to pay off the rest as quickly as you can.

Plan for How You’ll Pay

When you make a purchase with your credit card, you should have a plan for how you’re going to pay off the balance when your bill comes. If you don’t know how you’re going to afford to pay for a purchase, don’t buy it until your financial situation makes it possible for your to do so. Remember, making a purchase on a credit card is like taking out a loan and you should never take out a loan without knowing when and how you’ll pay it back.

If you can’t afford something now, save up and buy it later when it makes more sense.

Know When to Stop

If your balance is getting too large and you’re not able to pay off your bill, it’s time to stop using your credit card. Continuing to add on charges when your debt is already more than you can handle isn’t being responsible.

If you’ve spent more than you can afford to repay, you’ll need to stop, come up with a plan for reducing your debt and, in the meantime, find a way to pay for your expenses without using your credit card. After all, it’s incredibly tough to pay off debt when you keep adding to it.

Don’t Max Yourself Out

Try not to reach your maximum credit limit. That’s because creditors don’t like to see someone using all their available credit. The reason is they believe if you’re using up all the credit available to you, you’ll likely have trouble paying it off. In general, it’s best to only use about 30% of the credit available on all of your credit cards.