A shocking 70% of American households depend on credit cards. But many people don’t really know how to use them.
Using credit cards can lead to a slippery slope of overspending, debt, and bad credit. Then, these little plastic cards that were meant to make life easier only make it harder.
You, too, may not know how to use your card to protect yourself and reap maximum benefits. Read on for the top six things you must know about using credit cards.
1. Interest Can Cost More Than You Think
Credit card interest rates can be confusing to understand. They’re typically expressed as an APR (annual percentage rate), which is often variable. And your APR can go up if you’ve been late on a payment or have a low credit score.
And with any unpaid balance, you’ll likely find yourself paying interest on your interest. This can quickly drive up the cost of using your credit card, making it impossible to ever catch up.
This is how many Americans find themselves drowning in credit card debt.
To avoid getting sucked into the credit card interest spiral, pay as much as you can each month towards your balance. Paying it off in full each month is the best way to sidestep unnecessary interest costs.
And remember, only paying the minimum will, in many cases, end up costing you far more than the original purchase.
2. Use Your Rewards and Benefits
Credit cards offer a variety of rewards and benefits to users, yet you may not know everything you’re entitled to.
For example, credit cards offered by Farmers Bank provide rewards points that can be used for shopping, receiving merchandise and more.
And like many companies, they offer extra bonus points during special periods and holidays. If you have a credit card, it’s important to check for these promotions to earn all the points you’re entitled to.
Aside from rewards, credit cards also carry some surprising benefits you may not be aware of. Many cards offer travel insurance, car rental insurance, purchase protection, and even concierge services.
3. Credit Cards Can Help You Build Credit
If you use your credit card wisely, you can start building credit and earning a high credit score.
For young adults, a credit card is an ideal way to build credit for the first time. Cards offered to first-time borrowers typically have a low limit, making it hard to overspend.
But even if you’re not new to using credit, a credit card can be useful. There are credit cards for bad credit, which help you slowly repair your credit score to earn the trust of lenders in the future.
To protect your credit, always keep your credit utilization ratio low. This is the amount of credit used compared to the amount of credit available to you. So, for example, if your credit card limit is $1,000, avoid maxing out your card, opting to only charge up to around $300 at a time instead.
4. Watch Your Spending
One benefit of using a credit card over cash is that you can easily track your spending. This is ideal for budgeting and figuring out where you might be spending too much of your hard-earned money.
Opt for a credit card with mobile banking, where you can check balances and activity right from your phone. And if you have your own business or work as a freelancer, these records can also come in handy come tax season.
If you’re not used to seeing how much you really spend, it can be intimidating at first. Take a deep breath, and know that looking at your spending can be a valuable tool to help you keep your finances on track.
5. Credit Cards Protect You From Fraud
Many people have a negative image of credit cards, believing that they’re a convenient evil that only make overspending easier.
But credit cards are actually one of the safest forms of payment available.
That’s because credit card charges don’t immediately get taken from your bank account the way that an ATM withdrawal or a debit card purchase does. So if there’s an unusual charge or fraudulent activity, you can stop it before it causes any damage.
Many credit cards can even determine if a purchase is fraudulent before you can. Then, at worst, you only have to get a new card to replace your old compromised one.
6. Negotiate to Save Money
Credit card companies and banks want your business. And as a customer, that means you might have some wiggle room when it comes to negotiating.
Unfortunately, you can’t negotiate everything related to your credit card. But many fees, such as late fees or annual fees, can be waived for loyal customers.
You may also be able to negotiate interest rates.
Look at the interest rates offered by competitors and determine what you’re eligible for. Also take your own history into account. If you’re in good standing, yet you’re still being overcharged for interest, you can request a lower rate from your credit card company.
Get the Most Out of Your Credit Card
Depending on how you use them, credit cards can be an invaluable tool or a destructive financial risk.
Use the tips outlined here to help you get the most out of your credit card. That way, you can spend guilt-free, knowing that you’re building credit, protecting your account, and saving money along the way.
Learn more about how to earn and save money in our latest articles on business and cryptocurrency!
