How To Use Credit Cards Wisely

Credit cards often get a bad rap due to their high interest rates and some people’s tendency to rack up thousands of dollars in credit card debt. However, if you use them properly, they can actually be a very useful tool. Renting a car, booking flights and ordering online are all things that would not be possible without a credit card. Here are some guidelines for making wise decisions about your credit card use.

Always pay off your balance in full. This is the number one rule of using a credit card and means that you should not be buying more than you can afford. Just because you have access to funds through your credit card, that doesn’t meant that you have the cash to cover it and not paying off your balance each month means that you’ll start incurring interest charges on any balance you carry. A good rule is to not charge anything you wouldn’t otherwise buy with cash. If you can’t pay in full one month because of an emergency, at the very least, you must pay the minimum and should definitely aim for more than that.

Consolidate your debt to pay it off on time. Credit card debts can spiral out of control if you don’t follow rule #1 above. If it does, and there is no way that you are going to pay off this debt in full, consider consolidating your debt.

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Don’t Fall Into A Spiral Of Debt

Paying high interest on credit cards is never a good strategy to building wealth and achieving positive personal finance goals.  What is a high rate?  These days, 25% is probably considered high.

If you find yourself in a high interest situation, hopefully you are trying to do something about it.  Some people continue paying on the debt, hopefully whittling away the debt.  Others try to take advantage of balance transfers for lower rate cards.

Regardless of your intent, getting out from underneath a high interest loan is key, because any dollar paid in interest is a dollar you no longer have.  Reducing those dollars spent will help put them in your pocket instead.

One of the things that can come up that can really throw a monkey wrench in getting away from high interest credit cards is a situation in which you may not be able to pay even your minimum payment.  This can have a long lasting effect on your credit as a late payment can cause your rates to go up even further and could add additional late fees to your account.  In certain cases, say if your paycheck is coming a day or two later, it could make sense to look at a short term loan.

Keep in mind timing.  Paying the loan off in a couple of days is costly, but can sometimes be less costly than a late fee.

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I Got A Citi Dividend American Express Card Without Asking For One (But It’s OK!)

I saw a post a few weeks ago on Consumerism Commentary where Flexo got a credit card that he didn’t ask for and really wasn’t all that happy about it.   When Citi sent a replacement credit card for his Dividend MasterCard, they also sent an American Express card.

I read the story with interest, because both my wife and I hold Dividend MasterCards and use them as our primary credit cards, turning down other cards in favor of the cash back that our Dividends card gives us. Most of Flexo’s readers that left comments were similarly put off by getting a card ‘forced’ without asking.

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The Credit Cards Of The Rich And Famous

When it comes to money matters, being rich and famous definitely has its advantages. You can afford the best of everything, which is great.  On top of that, your credit card unlocks the door to even more privilege.  Many of us struggle to make ends meet.  However, the rich and famous do not need credit cards for bad credit when times get hard.

Additional Rewards

Royalty, celebrities and entrepreneurs are able to access a range of credit cards that provide many advantages.  These include additional rewards and bonuses far beyond money-off vouchers or discount deals.

These credit cards themselves are actually a status symbol.  One cannot simply apply for one as you would for any normal card.  These are not credit cards that are used to improve credit scores.

Instead, you are invited to join the club of exclusive credit card holders. The most rare and prestigious credit card is rumored to have only 100 holders.  That’s absolutely incredible.

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Did I Really Just Add Two More Credit Cards To My Wallet?

I’m all about keeping it relatively simple when it comes to spending.  For the most part, I use two cards for purchases, a debit card that draws out of our bank checking account, and a credit card that I use for various spending categories, which pays 1% cash back.

It works well.  It is simple.  It allows me to keep on top of things on a daily basis if I so choose (I do!).

So, why on earth would I willingly add two more credit cards to the fray?   Why complicate my life?  Have I lost my personal finance mind?

Fear not, my sanity is still in check.

The reason is simple:

Five percent.

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Should I Sign Up For A Lowes Credit Card?

I’m not one that’s much for signing up for individual store credit cards.  They often hurt your credit score, plus it’s one more thing to keep track of.  If you’re a creature of habit that knows what bills you pay every month, you might forget all about making a payment if you don’t use the card regularly.  This could be devastating to your credit score.

Despite these risks, I’m thinking about getting a Lowe’s credit card.  Right now, my Citi Dividends credit card has a 5% cash back on all home improvement store purchases.  But that’s only good for three months at a time, and is set to run out June 30th.

Now, Lowes’ has recently announced that for all purchases made on a Lowe’s card, you get a 5% discount on your purchase.

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