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By Claire Hegstrom
Credit cards often get a bad reputation for causing downward spirals of debt and compounding interest charges. And it’s true, without a game plan or well-thought-out budget, they can cause a slippery slope of mindless swiping and scary credit card bills.
What many financial experts fail to tell you, though, is that if you write off credit cards altogether, you’ll miss out on rich rewards, added security over cash and even an improved credit score! Credit cards can be a great tool to have in your personal finance back pocket.
In fact, many people have mastered the art of using credit cards like cash! They swipe their card on everyday purchases, link all their automated bills, and effectively use it like they would their checking account. But before you stash your debit card somewhere safe and switch to using your credit card as your primary money tool, let’s take a look at how it’s done, the savvy way.
Credit cards are undoubtedly one of the safest ways to transact, especially online. This is because they aren’t linked to your personal accounts like your checking and savings the way debit cards and checks are. Credit cards are much easier to track and replace than cash, which once stolen is gone for good!
Replacing your debit card information with your credit card number on your online accounts is one of the quickest ways to start protecting yourself from fraud now! As an added bonus, credit card companies often boast extra security and fraud protection perks for purchases you didn’t authorize.
One of the biggest arguments for learning how to use credit cards to your advantage is that you don’t want to miss out on rewards programs! There are so many ways to earn more money on your everyday purchases. From cash back to rewards points, you could be getting paid for the spending you already had planned.
The key here is to make sure that you’re always paying your credit card balance on time and pay a decent chunk down every month. Since many credit card interest rates are in the double digits and rewards and cashback percentages are usually in the single digits, interest rates can quickly gulp up any rewards you would’ve earned if you choose to carry a high balance.
If you’re planning on switching most of your purchases to your credit card, it may require a little bit of math. You’ll want to add up the credit limits of all your credit cards combined, and ensure your balance at the end of the month isn’t over 30% of your combined limit.
For example, let’s say you have three credit cards, each with a $10,000 credit limit, for a total of $30,000 in available credit. You’ll want to keep your monthly charges under $9,000 to not exceed the 30% credit utilization threshold. Going over that $9,000 threshold could negatively affect your credit score.
If it isn’t possible for you to stay under the suggested utilization limit, you may want to ask for a credit limit increase, or pick and choose which kinds of purchases to always put on your credit card.
Contrary to popular belief, carrying a balance on your credit card isn’t always a bad thing. One of the ways people can use credit cards to their advantage is through balance transfers of high-interest credit card debt to a 0% APR introductory rate credit card.
Although balance transfers usually cost a small fee, they can help you save money in the long run. The 0% APR introductory rate period usually lasts about a year, making payments manageable and allowing you to pay off debt which would’ve been racking up interest elsewhere.
Paying your bill by the due date is the most important thing you can do for your credit score. Payment history accounts for 35% of your score, and has the biggest impact on your score if you miss a payment. In fact, according to FICO, a missed payment by 30 days can result in up to a 37-point drop!
Mark your billing cycle down in your calendar so that you’re aware of when payments are due and when interest charges will be assessed if your bill isn’t paid in full.
When used strategically, credit cards can be the perfect tool to protect your personal accounts, help you pay off high-interest debt, and earn yourself rewards for everyday spending! With on-time payments and a watchful eye on your credit utilization, you may even see your credit score rise.
Looking for more credit tips and tricks? Check out these other blog posts:
Claire Hegstrom is an advocate of the credit union movement through and through. Passionate about financial education, she approaches money conversations from a candid and inclusive space focused on growth and awareness. As our credit union founding father, Ed Filene, once said, “Progress is the constant replacing of the best there is with something still better.” Claire hopes reading Money Mentor will help transform your life from the best to even better.
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