In some situations, credit cards are a sensible financial tool. However, it’s essential to handle these accounts responsibly. Doing so may mean earning valuable rewards and developing a positive credit history.
Unfortunately, bad habits can lead to financial disaster, leaving you in debt and damaging your credit. Ditch these bad credit card habits today to enjoy a better financial future.
Paying Debts with Credit Cards
This isn’t always forbidden. If you’re offered a balance transfer that comes with a zero-percent APR for an extended period, this is your chance to pay off high-interest credit card debt much more quickly.
However, this isn’t a good idea in other situations. Avoid paying off things like car loans, student loans, and mortgages with credit cards. Doing so could be disastrous financially. That is because credit cards tend to have higher interest rates than loans.
If you’re in a situation in which you must do a credit card balance transfer or make a loan payment using a credit card, resolve to pay off that balance as fast as possible.
Carrying Balances on Your Credit Cards
A common financial myth that gets circulated regularly is the one about needing to carry a balance for it to show up on your credit report.
Let’s stop this rumor right here. There’s no need to carry a balance to improve your credit report. In fact, carrying a balance can be detrimental, especially if it’s equal to 50 percent or more of your available credit.
When you carry a balance, you must pay interest on that balance. The total amount you spend on that debt can snowball.
The smartest strategy is to pay off your credit card balances every month. This builds your credit score, shows responsible financial decision-making, and saves money.
Avoiding a Budget
Nobody likes budgeting. Some people will do almost anything to avoid making one. This can be a critical error as it may lead to financial problems.
When you overuse your debit card, your bank lets you know that you’ve gone too far by declining the card. When you overuse a credit card, the lender lets you spend and spend up to your limit without any warnings.
How much can you afford to pay toward your credit cards every month? Choose a number that you are confident that you can pay each month and that will pay off your cards in full each month. Create a rule for yourself that says you aren’t allowed to charge any more than that amount in a single month. This can help you to put on the brakes when you know you’re getting close to your budget.
Paying Annual Fees
There are hundreds of credit cards out there. Some of them charge annual fees; some of them don’t. In general, it makes sense to choose credit cards that don’t have annual fees as this will save you a lot of money over time.
The exception to this is a rewards credit card that charges an annual fee. Do the rewards that you earn each year cover the annual fee plus a great deal more? If so, then paying that annual fee may not be such a big deal. However, if your rewards aren’t even covering the annual fee, then it’s time to ditch that card.
