If used correctly, credit cards can actually make financial sense, but the key words are “used correctly”. Back in the day, credit cards could have been given a bad rap, almost giving the impression that you didn’t have the money if you were using a credit card to make a purchase, but these days, while I guess that could still be true for some, using a credit card can give your bank account protection against fraud, they’re accepted everywhere, and give you a nice grace period of paying back. In order to take advantage of the rewards of using, staying out of debt is important, and while you can use your extra money to buy cpxx, making the full statement balance payment is necessary.
Using the Wrong Card
There is an endless supply of cards out there. From getting offers in the mail, even email, and seeing plenty of commercials of the many major brands, which ones are the best? Well the APR is important to ensure a low percent on purchases, but even more are the rewards associated with the card. Between points you can redeem for gift cards or even a cashback check once a month, by making the purchases that you were going to be making anyways, you can earn what would you would essentially be leaving free money on the table otherwise.
Carrying Over a Balance
When you’re not able to payback the full statement balance by the due date, the interest rate kicks in and depending on the percent and balance, could add a significant amount you’re paying back each month. This is where tracking spending will really come in handy as you’ll want to make sure you can stay within your spending budget, so after expenses and saving, will still have more money coming in, instead of going out. Taking a look at last month’s statement and going line by line will give you a good idea of where all of your hard-earned money is going.
Making Only the Minimum Payment
When you receive your credit card statement you will see a minimum payment that has to be made by the due date. While this amount will keep your account in good standing, only making that minimum payment will do little to chip away at the balance and will really just go towards interest and maybe a few dollars towards the balance. Continuing to make as large of payments you can afford until the balance is finally gone is the best for your finances without wasting too much money on interest.
Closing an Account with Zero Balance
When you are finally able to payoff a card with a balance, the first instinct may be to close the account right away so you don’t get yourself into trouble again, but actually this could hurt your credit score. By closing the account, it would take away from the available credit that you have and if you are carrying any other balance, increase your credit utilization and lower your credit score.