When it comes to credit cards, we’re quite a nonchalant society. They’ve become so commonplace that we tend to be looser than we should. Once upon a time, they were handled with kid gloves, treated with respect, and almost never used online. We were afraid to send our info out into the Great Beyond, but, as of 2012, consumers spent $226 billion online (Forrester Research).
That number is expected to soar by 2016 to 327 billion dollars — excluding the sales of cars, homes, gasoline and groceries. $327 billion!
With this rampant credit card use, we have to tighten things up and protect ourselves from overspending. When we fail to make any rules for our own spending, bad things happen. We run up debt and create psychological pressure on ourselves to pay it off, knowing we probably won’t.
But with smart use of our cards, we can avoid that abysmal feeling of loss and torment when we look at our bills.
9 Simple Tips for Smart Credit Card Use
1. Pay off your cards
This is the most difficult and most obvious solution to avoid falling deeply into debt. Yet, you might be surprised by how many people can pay off cards, but don’t. If you have a card with a small enough balance that you can pay it off, do so. Chip away at everything else, knocking the debts out one at a time. This may be the longest part of your credit card journey, but it’s definitely the most worthwhile.
2. Pay more than the minimum
Don’t pay only the minimum each month. You’re throwing money out the window if you’re only paying interest on money borrowed — not to mention that it could literally take decades to pay off. Paying two times the minimum can pay it off in a few years. Even if you can only afford $10 extra a month, pay it.
3. Charge smart
Don’t run your balance up anywhere near your limit. While using your credit card can positively affect your credit history and score, running it too high has a negative effect. Financial institutions look at your available credit, as well as how much of it you’ve used, to determine your overall risk for loans and mortgages. If you must have a balance, be sure to keep it low.
4. Avoid cash advances
Unless life calls with some calamity for which you must have cash on the spot, steer as clear as possible from cash advances. They’re riddled with interest and fees that are not worth the convenience.
5. Pay on time
Whatever you do, pay your bill on time. Fees, charges, and negative press on your history are not things you need. Pay on time and pay less in the long run.
6. Negotiate
Check other cards to find out what you should be paying in interest, then negotiate with your credit card company to reduce your rate. Don’t accept what you’ve been given as your best rate: call them and talk them down. This is done by smart consumers each and every month.
7. Watch your account
In this digital age, it’s more important than ever to keep a close eye on what’s happening with your cards. Make it a daily habit to glance at your balance and make sure the purchases are all yours. Cut out some Facebook time if you have to — but keep your eyes peeled for fraudulent activity and purchases you didn’t make.
8. Use secure sites to transfer credit card info
Phishers are out there seeking access to your sensitive info. Never send your credit card information over email, or you’re at risk for becoming a victim of fraud. Use a secure site, such as PayPal, to make payments.
9. Keep your accounts open
Once you pay off a card, keep the account open. Closing it negatively affects your credit score by lowering your total available credit, which is a standard used in calculating your score. The more credit you have available that you’re not using, the better you look to creditors.
What are your tips for using credit cards in a smart way?
{ read the comments below or add one }
I see the last post is 1.5 years ago, but anyway… In our 40’s, we still use credit cards all the time, literally, but with no debt, since they are paid in full automatically by the bank every month. We don’t have a car, and no need for one (don’t live in the U.S.) so that won’t be a problem; flat’s paid off completely (since 9 years ago); have a medium sized “basket” of investments, retirement and insurance funds, and savings. Our weakness is trips abroad (not road trips!), but we always save up for them. However, the insurance provided by credit cards for flights – how does someone who doesn’t use credit cards get around that? Can you even rent a car if you don’t have a credit card to hand the counter person? Ok, the last time we rented a car was for an family wedding nearly 2 years ago, but still.
I do understand that some people need to be extremely careful with credit cards. My sister went into tens of thousands of dollars of debt with them, and eventually declared bankruptcy, after she lost her job and was unable to find another due to health problems. But for most – is the compulsion to spend on random stuff you can’t afford really that strong?
9 good and simple rules that everyone should use. Also, use credit cards as little as possible. Save money and pay cash instead so maybe you can negotiate for you an extra discount.
Great post! I think all the above 9 tips are genuine and strong enough to make you understand how to use your credit card wisely. Have a nice day ahead.
Typo….all types of consumer borrowing, especially CREDIT CARD borrowing, out of people’s lives.
One more thing. Let’s say person A pays a credit card 10% annually, and person B has no debt and earns 10% annually from investing. THAT IS A 20% spread! That’s right! Person B is making 20% more than person A.
And that is why the rich get richer, and the poor get poorer. The rich do smart things with their money, and the poor do stupid things with their money, like borrow on credit for things they couldn’t afford to impress people they don’t really like.
I am so bad with credit cards , shopaholic , I need help , I used to have 10 credit cards and used them all max , was so scare but luckyly my son help me to paid them all off then only kept one since 2010 and now get bad again with credit cards , still can not pay off yet , so sad
My wife and I are public school teachers. We are also on the Dave Ramsey plan. So I have forced myself to hate credit cards.
We have money put aside…a lot of it. It took a lot of hard work and sacrifice to get there. I think the key is doing a monthly budget, which we have done since the spring of 2007.
Rather than writing an article on how to use credit cards, this author should write an article on how to budget so that one could get all types of consumer borrowing, especially borrowing, out of people’s lives.
Hi Phil,
we have been doing the Dave Ramsey Plan as well (currently in BS #3) but I am terrified of getting rid of the cards completely…did you do it? I am so afraid of not being able to do a manual underwriting for a mortgage because I doubt we can come up with 20% down in a reasonable time (I think more of a 10-15% and a 20 year mortgage is more realistic..but who knows at some point getting out of debt didn’t sound realistic)..rent here in Mass is insane and even though we are saving (with extra jobs and having no payments on things) is not as much as I would like to. I have also moved my husband around too much as he has followed me through grad school so not having a stable job may be a problem for the manual underwriting as well.
What’s your opinion of this? As of know we have a tiny bill come out of the credit card monthly that gets payed automatically so they stay active….I hate credit cards and debt too but I am so scared that if I cancel everything and cut them up we will never have a house. Any thoughts or suggestions are welcomed!
Mara
Hi Mara,
I have been where you are today. The fact that you are thinking about it is awesome. It will happen soon enough.
My best advice…create a budget. I use drive.google.com and created a spreadsheet on there. Yellow paper and pencil works too. It will take 3-4 months for you to get the budget right, so give yourself time and grace for mistakes. I think the best part about the budget is that you will feel like you got a raise, because you know where your money is going.
If, after creating a budget, you cannot find extra money, then you have a career crisis. It is time to get a better job. Again, take your time, think about it, and move forward as needed. It will come.
I don’t think you need to buy a house now. Rent. Murphy (as in Murphy’s Law) will move in with you. Get out of debt. Save an emergency fund. See if you can get some money to put down on a house. I know it all sounds so impossible, but as a school teacher (not exactly a big paycheck), I am telling you it will come. It took us 6 years to get where we are now, but the real momentum has happened in the last 2 years.
I highly recommend Dave Ramsey’s book “The Total Money Make Over”. Also, I listen to his 1 hour free podcast every morning on my run. His advice will really change your life. It has ours. I don’t know anyone else who has done what we have done. Not bragging, but pointing out that it is a rare thing for Americans to NOT be broke.
Hey Phil! thanks for replying
Well we have been on a budget for almost two years which allowed us to get out of debt plus we bought our two cars cash! 😀 (also seemed impossible but it happened!!) – I did read the total money makeover and that’s how it all started.
We are not buying a house now..more like in 3-5 years. I had a few big ticket items I had to save for that I think it is why it seems as if the savings are crawling (the cars, tickets to go home since I haven’t been to my house oversees since 2008! ) – our EF in half way there..YAY!! and after that is piling for a house!..I completely agree with you (as a DR fan) We are not considering getting to a house with no savings or a low down payment 🙂
We are “weird” too..with saving and two paid for cars that are not the latest models…I probably know two families that are doing the same as us..one is my friend who recommended Dave stuff.
So..did you do a manual underwriting when you bought your house (cancel CC and all) or do you kept yourself out of CC debt and did it with a regular mortgage? – you seem to be where we are going in our near future which is why I would seriously consider your advice
oh and BTW I am seriously underpaid even though my check is not bad…if I was paid at least the average on my field with my degree that E.F. would be done and the Roth would be maximized..but oh well..as of now I am learning everything I can so I can make a move at the right time.
Thank you!
As I said we are in Baby Step 3… 🙂 should be done with this one by the middle of next year
Mara,
So sorry I did not really answer your question. I just assumed that you had the credit cards because you had a lot of debt, especially since you said some bills were being paid off of the credit cards.
No, we did not do manual underwriting. That being said, we have credit card accounts open, but I couldn’t tell you where the credit cards actually are. I just cut them up years ago and threw them away. At first my wife was not comfortable with not having a credit, so we froze them, built up more savings, and then eventually cut them up.
So to answer your question, I BELIEVE we had a good/great credit score from the way we used to live, and also because we did not close any accounts. I couldn’t tell you my credit score though, because I have frozen my credit score accounts with all 3 major credit bureaus (Equifax, Experian, and TransUnion). And because I am never borrowing money again, I don’t need to know my credit score.
As a helpful hint to myself, I put aside the money that I put on my credit card as I charge things so I do not have it in my regular checking account. This takes away the temptation to use it because it’s not there. Even though I can easily access it by logging on and transferring, it makes it that much less tempting.
#1 Simple Rule for Credit Cards
#1 Just don’t use them. Stay away. Remember, if you play with snakes you will get bitten.
That sounds nice in theory… Until you try to get a car loan or a mortgage or even a new cell phone. Then your lack of a credit history and lack of available credit will be as negative to the lenders as having a bad credit history. I did live without credit cards for years, and I know it can be done. But it’s not easy in this digital age, and I occasionally ended up having to ask my ex to charge something to his card. (I paid him back, of course, usually before the bill came in.)
None of the above article is rocket science or even new. Credit cards can work for you, if you treat them properly.
Car loan? Post paid cell phone? Come again? I paid cash for our last two cars ($13k and $8k respectively). And we use prepaid phone service. Currently a Nexus 4 on StraightTalk. But our next prepaid phone is going to be the new Moto X on $25 Republic Wireless service.
I will grant you this though, I am not 100% certain how the whole borrowing for a mortgage/credit thing works. I just have always had good credit, despite not using credit cards since 2005. Maybe there is a history there. Maybe they look at how much I have in my checking/savings/investment accounts.
But I do know underwriting is a possibility for people who have never borrowed before. It can be done. Because Dave Ramsey says so.
These are all solid tips of things to do when using your credit card. I think they all go back to being wise with your card and only using it when you know where the money is going to come from.