The thrill that comes with receiving your first credit card can be an intoxicating feeling like no other. It represents an entirely new world of financial possibility, accessibility, and most importantly, responsibility.
Credit card debt is very real and has been the key component to drive thousands of Americans to file for bankruptcy. These have been the lucky ones, as the debt that one accrues from excessive credit card spending can follow you to the grave.
The vast majority of financial troubles that arise from credit cards can be attributed not to the card itself, but rather, the person’s lack of knowledge on how to use it properly.
By the time most young adults move into their college dorm, or earlier, they will see credit card applications pour in, tempting them to apply for their first taste of financial independence. Unfortunately, it is easier for a person to apply and receive a credit card than it is for them to actually manage it.
Here are five tips to ensure that you use and manage your credit card wisely.
1. Learn the Difference Between a ‘Need’ and a ‘Want’
The availability that a credit card grants its user can tempt them to use it to purchase items that they would not normally buy without it. Therefore, it is essential to differentiate between those purchases that represent needs and those that are merely wants.
2. Limit the Number of Credit Cards You Own
In most cases, one credit card will suffice, allowing you the ability to properly monitor the amount of times you use it in a day. Having too many cards can be overburdening and tempting to use. By limiting your access to credit, you can limit your desire to spend more than is necessary.
3. Don’t Spend More Than You Can Pay
Make sure you don’t get into the habit of spending more than you can pay off. Become well aware of how much you will be able to pay back for your monthly payments. Ensuring that you don’t take in more than you can give back will help keep your priorities intact and the amount of debt you build up overtime at a minimum.
As a rule of thumb, try to stay within 30% of your credit limit. The majority of your credit score is influenced by the amount of debt you accumulate.
4. Negotiate a Lower Interest Rate
Don’t hesitate to negotiate more reasonable terms for your best interest. In the event that you receive a notice regarding a rate increase, ask your creditor to change the contract terms and lower your rates.
The interest rate determines how much you will have to pay for carrying a balance on your credit card. Monitoring the interest rate on your credit card frequently ensures you receive the best deal possible.
5. Find Credit Cards That Offer Rewards
Many credit cards offer perks and rewards or special bonuses for using them. Look into reviewing different reward programs offered by different card companies. Using a guide to find a good credit card rewards program is very helpful in comparing reward programs with one another and see which ones have the best rewards available.
There are some with some great benefits that, if done right, can be used to your advantage rather than disadvantage. Also, watch out for programs that force you to spend more money than you would have initially.
6. Avoid Paying Membership Fees
Some credit cards have an annual membership fee in return for their special perks. Depending on the exclusivity of the credit card, it could cost a few hundred dollars to thousands of dollars per year. The Amex Black Card costs $10,000 upfront and another $5,000 per year in membership fees.
When you are still building towards financial freedom, avoid any credit card that has an annual fee. There are plenty of free credit cards that offer great rewards without any extra fees.
Use Your Credit Cards Wisely
There are ways to use credit cards wisely and not get sucked into the trap of credit card debt. Don’t let temptation overrun your life where you become a slave to your credit cards. Let them work for you and be smart about how you use them.
