How to Use Your Credit Card Wisely
There’s been a lot of talk about credit cards recently, which is understandable considering the amount of debt ordinary consumers are carrying. The average credit card debt in Canada is $3,277, but many consumers have spent themselves well beyond that threshold. Credit cards in and of themselves aren’t a damaging financial tool, as long as you know how to use them. To get out of debt and stay out of debt, here are five easy tips to follow.
Become a transactor. The best way to beat the banks at their own game is to pay off your balance in full each month. The majority of their revenue comes from interest payments, but if you can avoid these by not carrying a balance between billing cycles, you can enjoy all of the rewards of having a credit card — such as cash back offers and points towards travel — without having to pay for them. Just make sure to read the fine print; the best credit cards will only charge a minimal annual fee for usage, if they charge any at all.
Pick up the phone. One of the classic mistakes that credit card holders make is never contacting their card issuers by telephone. This holds especially true for those who find that they can’t meet their monthly payment.
If you contact your card company to let them know in advance, they will often be willing to work with you to renegotiate the payment amount or due date. And if you’re no longer satisfied with your card contract terms, calling and talking to a customer service representative can often get you better terms without the hassle of having to switch to another card that looks more enticing.
Go paperless. Online banking is not just a marketing ploy; it’s actually a huge benefit to the consumer. If you make it a habit to stay informed of your account status — including the current balance — you’re less likely to spend money that you can’t afford to pay back at the end of the month. You’re also less likely to exceed your credit limit.
Going paperless also provides you with an electronic record of all the purchases you have made on your card, accessible from anywhere. This can be a helpful tool for the diligent budgeter.
Leave your cards at home. If you find it difficult not to put charges on your card for everyday expenses, such as food or fuel, it may help to simply take it out of your wallet.
If you manage your budget by using debit cards or prepaid credit cards, you’ll be less likely to splurge on frivolous expenses like dining out or impromptu shopping trips. Or even better, make all of your financial transactions in cash; the feeling of passing physical currency to a merchant is the best way to realize how much money you’re actually spending. Remember, credit cards should be for planned big purchases and financial emergencies, not living beyond your means.
Always allow for a little wiggle room. Even if you have to make a large credit card charge, you should always make sure that you stay well within your credit limit. As a rule of thumb, you shouldn’t carry more than 30 percent of your credit line on your cards. This will make sure that you don’t accidentally go over the limit and incur a damaging penalty interest rate or even worse — harm your credit score.
Using your credit card doesn’t mean that you have to be in debt. The key is to use it wisely so that you can put yourself on the path to financial success.
About the Author: Leo Fisher is a financial advisor and consumer advocate. He advises on how to succeed financially with budgeting tips and informative resources, such as Ratesupermarket.ca.
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