How To Use Credit Card Wisely – We just like to use credit cards. They give us the financial freedom to buy what we want, when we want, without worrying too much about paying for it. Therefore, the credit card has built a reputation as one of the financial products of choice when it comes to managing a financial crisis. If that’s not good enough, credit cards offer rewards programs that not only help you save money but also give you access to a better lifestyle.
But despite its many benefits, this open line of credit can be dangerously tempting; One wrong step can easily lead you to financial ruin. Therefore, you need to understand the dos and don’ts of using credit cards and develop the ability to use this excellent tool wisely, to your advantage. In this article we list the smart tips on how to use credit card wisely.
Table of Contents
10 Tips On How To Use Credit Card Wisely
1. Schedule your payment
Before considering a purchase with your credit card, you should have a detailed payment strategy. It’s a good idea to pay your credit card bill before its due date.
Not only does this help improve your credit score, but it also helps you build a good credit profile with the lender. Such profiles often get better deals on personal loans, discounts on financial products, and a host of other benefits.
Most banks also allow you to pay your credit card bills in installments. If you are experiencing financial stress, such steps will help take the burden off you and are a welcome gesture. However, in the long run, this often leads to higher interest payments, so it’s important to plan your payment.
2. Only use a credit card with trusted merchants
You should be aware that the risk of fraud with a credit card is higher than with a debit card. Therefore, it is good practice to only use a credit card with trusted merchants. It is maintained both in the case of a local store and online purchases.
3. Only borrow what you can repay
With a plethora of different credit card options available, it is often seen that a person’s credit card limit is much higher than their monthly income. It is important to keep track of your monthly expenses and only use an amount that you are sure you will pay. It saves you unnecessary accrued interest and huge debt and helps you build a financially healthy future for yourself and your family.
4. Don’t exceed the limit
When you use a credit card, the whole idea is that you are spending money that you don’t already have. It may seem tempting for new users to push them down the path of overspending. The first step here is to make sure you don’t exceed your credit card limit, no matter the situation.
Ideally, you should limit your credit card usage to 2/3 of the limit. For example, if your credit card limit is ₹3 lakh per month, you should plan your usage so that you do not spend more than ₹2 lakh. It will help you maintain a good credit card score, which will help you at a later stage.
Most banks offer the option of setting a personal spending limit on your credit card. It is an excellent option for people who are unsure about their buying habits.
5. Time your purchases
Every credit card is different and one of the first things you should do is understand your card billing cycle. Since most credit cards have a monthly billing process, if you can schedule your purchase in the days immediately after the bill is generated, you have approximately 45 days of interest-free period for bill payment. Depending on your card, the period may be longer.
6. Track your expenses
Using a credit card correctly requires you to be disciplined and understand your spending habits. Only by keeping a detailed record of all your expenses can you identify an unexpected transaction without wasting time.
When such false transactions are immediately reported to the bank, there is often room for rectification. Understand that none of this would be possible if you didn’t track your card transactions.
7. Be aware of the rewards
Almost all credit cards have a multitude of benefits and rewards as part of their loyalty program. From special discounts on e-commerce sites to free movies or plane tickets, there are a variety of benefits for credit card holders. To get the most out of it, look up your credit card company’s rewards program and stay tuned.
8. Check your credit report
Once you’re careful about your spending habits, the next step is to identify an inappropriate detail associated with the card. The details can range from things like a change in your address or employer to changes in your marital status. Sometimes errors such as fraudulent transactions or bills can be linked to your card.
Unless you read your annual credit report, you know nothing about these things. It is good practice to invest your efforts in reading and understanding your credit report. It will help you identify errors and plan your credit card expenses.
9. Be Wise With Your Credit Card Balance
While you should know how to use credit cards and pay your bills on time, sometimes carrying a balance is unavoidable. In such a situation, you need to be more careful and make sure that you make all your monthly payments on time. Where possible, pay more than the minimum amount owed so that the amount is paid off earlier.
Also remember that if you have a balance on your card, you need to be careful with your credit card usage so that your total monthly usage stays below 30% of the credit card limit. And you should always remember to pay your credit card bills on time by touching the credit card limit, while potential lenders have a vague idea of the existing balance.
10. Report Lost or Missing Credit Card Immediately
If your credit card is lost, missing, or stolen, report it immediately. Credit card companies use chips in credit cards to mitigate risk. If you do not report your card as lost, stolen, or lost and it has been used to transact, you may be responsible for charges even if they were not incurred by you.
How to Choose the Right Credit Card for Your Needs and Budget
One of the first steps to using your credit card wisely is to choose the right credit card for your needs and budget. There are many types of credit cards available in the market, each with different features, fees, interest rates, and rewards. You should compare different credit cards and find the one that suits your spending habits, goals, and financial situation.
Here are some factors to consider when choosing a credit card:
- Your credit score: Your credit score is a measure of your creditworthiness and determines your eligibility and terms for credit cards. The higher your credit score, the more likely you are to get approved for a credit card and get lower interest rates and better rewards. You can check your credit score for free online or through your bank or credit card issuer. You should aim to have a good or excellent credit score (above 670) to qualify for the best credit cards.
- Your spending habits: You should choose a credit card that matches your spending habits and preferences. For example, if you travel a lot, you might want a credit card that offers travel rewards, such as miles, points, or cash back. If you shop online frequently, you might want a credit card that offers online shopping discounts or protection. If you pay your balance in full every month, you might want a credit card that has no annual fee and a generous grace period. If you carry a balance from month to month, you might want a credit card that has a low interest rate and a balance transfer option.
- Your budget: You should choose a credit card that fits your budget and income. You should be able to afford the minimum payment and any fees or charges that come with the credit card. You should also avoid overspending and maxing out your credit card, as this can hurt your credit score and lead to debt. You should set a realistic and reasonable credit limit and stick to it. You should also review your credit card statement regularly and monitor your spending.
How to Manage Your Credit Card Account and Track Your Spending
Another step to using your credit card wisely is to manage your credit card account and track your spending. This will help you stay on top of your credit card balance, avoid fees and interest, and prevent fraud and identity theft.
Here are some tips to manage your credit card account and track your spending:
- Sign up for online banking and mobile app: You should sign up for online banking and mobile app with your credit card issuer. This will allow you to access your credit card account anytime and anywhere, check your balance and transactions, pay your bill, set up alerts and notifications, and report any issues or disputes. You should also update your contact information and preferences with your credit card issuer, such as your email, phone number, address, and security questions.
- Create a budget and stick to it: You should create a budget and stick to it when using your credit card. You should plan how much you can spend on your credit card each month, based on your income and expenses. You should also allocate your spending into different categories, such as groceries, entertainment, utilities, and savings. You should track your spending and compare it to your budget, and adjust accordingly. You should also review your budget periodically and make changes as needed.
- Use tools and apps to track your spending: You can use tools and apps to track your spending and manage your credit card account. For example, you can use a spreadsheet, a notebook, or a calendar to record your credit card transactions and payments. You can also use apps such as Mint, YNAB, or Credit Karma to link your credit card account and other financial accounts, and get a comprehensive view of your spending, budget, and credit score. These tools and apps can also help you set goals, reminders, and alerts, and provide tips and advice to improve your financial habits.
How to Pay Your Credit Card Bill on Time and in Full
One of the most important steps to using your credit card wisely is to pay your credit card bill on time and in full. This will help you avoid fees and interest, maintain a good credit score, and build a positive credit history.
Here are some tips to pay your credit card bill on time and in full:
- Know your due date and grace period: You should know your due date and grace period for your credit card bill. Your due date is the date by which you have to pay your credit card bill to avoid late fees and interest. Your grace period is the time between the end of your billing cycle and your due date, during which you can pay your balance in full and avoid interest. You should pay your credit card bill by your due date, or earlier if possible, to avoid late fees and interest. You should also pay your balance in full by the end of your grace period, or as much as you can, to avoid interest and reduce your debt.
- Set up automatic payments and reminders: You should set up automatic payments and reminders for your credit card bill. You can set up automatic payments through your bank or credit card issuer, and have the amount deducted from your checking or savings account every month. You can also set up reminders through your phone, email, or calendar, and get notified before your due date. This will help you avoid missing or forgetting your payments, and save you time and hassle.
- Pay more than the minimum: You should pay more than the minimum amount due on your credit card bill. The minimum amount due is the lowest amount you have to pay to avoid late fees and keep your account in good standing. However, paying only the minimum amount will not reduce your balance significantly, and you will end up paying more interest and taking longer to pay off your debt. You should pay as much as you can afford, or at least a fixed amount that is higher than the minimum, every month. This will help you lower your balance, save on interest, and pay off your debt faster.
How to Avoid Common Credit Card Mistakes and Pitfalls
Using your credit card wisely also means avoiding common credit card mistakes and pitfalls that can cost you money and damage your credit. Here are some of the most common credit card mistakes and pitfalls, and how to avoid them:
- Applying for too many credit cards: Applying for too many credit cards can hurt your credit score and increase your risk of debt. Every time you apply for a credit card, your credit score takes a small hit, as the credit card issuer performs a hard inquiry on your credit report. Too many hard inquiries can lower your credit score and make you look desperate for credit. Moreover, having too many credit cards can tempt you to overspend and rack up debt, especially if you have high credit limits and low interest rates. You should only apply for credit cards that you need and can manage, and space out your applications over time.
- Closing old or unused credit cards: Closing old or unused credit cards can also hurt your credit score and increase your risk of debt. Closing a credit card reduces your available credit, which increases your credit utilization ratio. Your credit utilization ratio is the percentage of your available credit that you are using, and it affects your credit score. The lower your credit utilization ratio, the better your credit score. Closing a credit card also reduces your credit history, which is the length of time you have had credit, and it affects your credit score. The longer your credit history, the better your credit score. You should keep your old or unused credit cards open, unless they have high fees or negative effects on your credit. You should also use them occasionally and pay them off in full, to keep them active and boost your credit score.
- Making only the minimum payment: Making only the minimum payment on your credit card bill is one of the worst credit card mistakes you can make. As we mentioned earlier, making only the minimum payment will not reduce your balance significantly, and you will end up paying more interest and taking longer to pay off your debt. You will also hurt your credit score, as your credit utilization ratio will remain high. You should always pay more than the minimum amount due, or pay your balance in full, every month, to avoid interest, reduce your debt, and improve your credit score.
- Missing or making late payments: Missing or making late payments on your credit card bill is another major credit card mistake you can make. Missing or making late payments will result in fees and interest, and damage your credit score and history. Your payment history is the most important factor in your credit score, and any late or missed payments will stay on your credit report for up to seven years. You should always pay your credit card bill on time and in full, or at least the minimum amount due, every month, to avoid fees, interest, and negative marks on your credit report.
- Exceeding your credit limit: Exceeding your credit limit on your credit card is another costly and harmful credit card mistake. Your credit limit is the maximum amount of credit that you can use on your credit card, and it is determined by your credit card issuer based on your credit score, income, and other factors. Exceeding your credit limit will result in fees and penalties, and lower your credit score and availability. Your credit card issuer may also reduce your credit limit or cancel your account if you repeatedly exceed your credit limit. You should always keep your credit card balance below your credit limit, preferably below 30% of your credit limit, to avoid fees, penalties, and credit score damage.
- Ignoring your credit card statement and terms: Ignoring your credit card statement and terms is another common and dangerous credit card mistake. Your credit card statement and terms contain important information about your credit card account, such as your balance, transactions, fees, interest rate, due date, grace period, rewards, and rights and responsibilities. Ignoring your credit card statement and terms can lead to missed payments, fees, interest, fraud, errors, and disputes. You should always read your credit card statement and terms carefully and thoroughly, and contact your credit card issuer if you have any questions, concerns, or issues.
How to Deal with Credit Card Debt and Get Out of It
If you have already made some of the credit card mistakes and pitfalls we discussed above, and you are struggling with credit card debt, do not panic. There are ways to deal with credit card debt and get out of it. Here are some steps you can take to tackle your credit card debt and regain your financial freedom:
Stop using your credit card:
The first step to dealing with credit card debt is to stop using your credit card and adding more debt to your balance. You should cut up your credit card, lock it away, or freeze it in a block of ice, and use cash, debit, or prepaid cards instead. This will help you curb your spending and focus on paying off your existing debt.
Make a list of your debts:
The next step to dealing with credit card debt is to make a list of your debts and prioritize them. You should list all your credit card debts, along with their balances, interest rates, minimum payments, and due dates. You should also list any other debts you have, such as loans, mortgages, or bills. You should then prioritize your debts based on their urgency and cost. You can use one of these two methods to prioritize your debts:
- The snowball method: This method involves paying off your smallest debt first, and then moving on to the next smallest debt, and so on, until you pay off all your debts. This method can help you build momentum and motivation, as you see your debts disappear one by one.
- The avalanche method: This method involves paying off your highest interest debt first, and then moving on to the next highest interest debt, and so on, until you pay off all your debts. This method can help you save money and time, as you reduce the amount of interest you pay.
You should choose the method that works best for you and your situation, and stick to it until you pay off all your debts.
Make a budget and a payment plan:
The third step to dealing with credit card debt is to make a budget and a payment plan. You should make a budget that shows your income and expenses, and how much you can afford to pay towards your debts each month. You should also make a payment plan that shows how much you will pay to each of your debts every month, and how long it will take you to pay them off. You should follow your budget and payment plan faithfully, and track your progress and results.
Pay more than the minimum:
The fourth step to dealing with credit card debt is to pay more than the minimum amount due on your credit card bills. As we mentioned earlier, paying only the minimum amount will not reduce your balance significantly, and you will end up paying more interest and taking longer to pay off your debt. You should pay as much as you can afford, or at least a fixed amount that is higher than the minimum, every month. This will help you lower your balance, save on interest, and pay off your debt faster.
Negotiate with your credit card issuer:
The fifth step to dealing with credit card debt is to negotiate with your credit card issuer. You can try to negotiate with your credit card issuer to lower your interest rate, waive some fees, extend your grace period, or settle your debt for less than you owe. You can do this by calling your credit card issuer and explaining your situation and your willingness to pay off your debt. You can also use a professional debt relief service or a credit counselor to help you negotiate with your credit card issuer. However, you should be careful and do your research before choosing a debt relief service or a credit counselor, as some of them may charge high fees or have hidden agendas.
Consider other options:
The sixth and final step to dealing with credit card debt is to consider other options. If you have tried all the steps above and you are still unable to pay off your credit card debt, you may want to consider other options, such as:
- Balance transfer: A balance transfer involves transferring your credit card debt to another credit card that has a lower interest rate or a promotional period with no interest. This can help you save money on interest and pay off your debt faster. However, you should be aware of the fees, terms, and conditions of the balance transfer, and make sure you can pay off your debt before the promotional period ends.
- Debt consolidation: Debt consolidation involves taking out a loan or a line of credit to pay off your credit card debt and other debts. This can help you simplify your payments and lower your interest rate. However, you should be careful not to take on more debt than you can handle, and make sure you can afford the repayments and fees of the loan or the line of credit.
- Debt settlement: Debt settlement involves negotiating with your credit card issuer to settle your debt for less than you owe. This can help you reduce your debt and avoid bankruptcy. However, you should be aware of the tax implications, fees, and credit score damage of debt settlement, and make sure you get a written agreement from your credit card issuer before you pay them.
- Bankruptcy: Bankruptcy involves filing a legal process to discharge your credit card debt and other debts. This can help you get rid of your debt and start fresh. However, you should be aware of the legal costs, fees, and long-term consequences of bankruptcy, such as losing your assets, damaging your credit score and history, and affecting your future financial opportunities.
You should weigh the pros and cons of each option, and consult a financial expert or a lawyer before you make a decision.
Conclusion – How To Use Credit Card Wisely
The benefits, benefits, and rewards of using a credit card are amazing, but only if you have the willpower and self-discipline to take advantage of it. The above tips for using credit cards wisely will help you better manage your credit card money and get the most out of it.
With these 10 tips on how to use credit card wisely, you are now ready to use your credit card in a way that is good for your finances and ensures that you take full advantage of the benefits it offers.