Some Rules on Using a Credit Card

Rules on Using a Credit CardDo you have a credit card?  A Visa perhaps?  Or maybe you carry a Discover Card.  You might even carry an American Express or a MasterCard.  Either way, chances are that you carry one of these magical pieces of plastic in your wallet.  I call them magical because you can anywhere, assuming you are within your credit limit for that month, swipe the card, and buy whatever you want.  You get to go home worry free and enjoy whatever you just purchased.  Whether this is groceries, movie tickets, furniture, or booze for the ball game, credit cards make our lives easy and allow us to spend money in a moment’s time.

With these credit cards comes responsibility.  For instance, I have $15,000 a month credit limit.  This means that each month I am allowed to spend $15,000.  When the next month comes around, and it always does, you will be hit with a bill.  So, let’s just say I spent $2,000 last month.  (The way my credit card works is I have a month and two weeks of spending before I get a bill.  This allows for multiple paychecks to pay one credit card bill.)  With that $2,000 spent I will get a bill offering me a minimal payment.  Last month I was just over that $2,000 mark and my minimum payment was $35.

I pay my credit card bills off every single moth.  I have never missed a payment, I have never paid anything less than the full balance due, and I never plan on it.  Of course, there will probably come a time that I will have to let a bill slip and just pay that minimum amount, but for right now I do not have to worry about that.  I have been lucky enough to learn and set spending limits for myself, not making that overdue bill a reality.

I recently read an article that discussed the four things that can help you with credit cards and building your credit score.

1. Don’t make the minimum payments.

This is an obvious declaration.  If you have a bill that is more than the minimum payments then the next month’s bill will have added interest.  For most credit cards, unless you have impeccable credit, your interest rate will be over 10%.  I have perfect credit and my interest rate is just over 12%.  I have never paid a single month’s bill late, but I pay attention to that interest rate just in case.  If you get into the habit of paying the minimum payment you will hit your credit limit a lot faster and be stuck with an incredible bill that just grows with interest.

2. Don’t carry too many cards.

The experts say that it might be wise for you to carry multiple cards to increase your credit limit.  However, you need to be careful if you are going to use this option.  The main reason is because if you have them you will use them.  It is the same thing with carrying cash in your wallet.  If the cash is easily available then you are going to be more tempted to spend it. And the same goes for credit cards.  If you have multiple credit cards you are going to be tempted to use them just the same.

On top of using the cards, keeping track of what you owe on each and paying them off each month can become a hassle.  I carry one credit card and one debit card.  I never use my debit, except for my Netflix account that automatically withdraws.  I use my credit card for everything else.  Do not ask me to loan you a dollar because I won’t have one in my wallet.  (I have actually gotten into many situations where I needed cash, like pulling out of a parking garage, and had to jump through hoops just to get out of the garage.)

3. Do not miss the bill’s due date.

Outside of the obvious fact that you will be hit with an interest rate that will make your head spin, you will also be hit with late fees.  There are some cards out there that charge upwards of $40 for every missed payment.  That is not included in your interest or your monthly spending, it is just tacked on to the end.  Unless you are watching your credit card statement like a hawk then you will probably never see this charge.  It is one of those things that comes in the fine print that none of us ever read.  So make sure that if you do have a payment due that you are paying it on time to avoid these unsightly charges.

4. Don’t take cash advances.

The beauty of having credit cards allows for you to take a cash advance.  So, let’s say that you get paid on Friday but rent is due on Tuesday.  You can go to an ATM, put your card in the little slot, and take out as much as you want.  Of course, this is based on your credit card limit as well as the limit that particular bank has set on daily withdrawals.  So if you go to the ATM and take out $500 to pay rent, that just gets added on to your monthly statement.  So when the bill comes that additional money that you did not have will be thrown on top of it.  Sure, you might get paid on Friday, but make sure you remember that the money you took out still has to be paid back at some point.

My dad has always told me that credit cards can be the greatest thing in the world but at the same time ruin your financial future.  I take that to heart with every single swipe of the card.  I pay my bill off every month and control my spending by actually looking at what I am purchasing.  I treat my credit card like a debit card as in what I spent will come right from my checking account.  Why don’t I use my debit card instead of a credit card you may ask?  Well, I get 3% cash back on my credit card spending.  So I have an account that money is put in every time I use my credit card.  The bank makes it convenient to use, they pay me for using it, and I am responsible enough as an adult to use it the right way.  I suggest that you to try to use a credit card to your advantage.  But be careful, it very well might ruin your financial freedoms.