More often than not, when people get their first credit card they usually will go out make a purchase. Sometimes, the item that is purchased is something the card holder cannot afford. Many credit card holders believe that they will not fall into the typical credit card traps, but a great deal of people have the “buy now, pay later” mentality usually do. Credit cards are a useful tool when used responsibly, but abusing a credit card can lead to trouble. There are a few simple tactics to avoid credit card debt.
One big factor in staying out of credit card trouble is to charge only what you know you can afford. Carrying a balance less than the amount in your bank account is a good habit to get into so it can paid off at any time. Many people disregard both the affordability and necessity of an item they are purchasing with a credit card. A large amount of consumers today purchase on impulse and think they can just pay it off at a later time.
Another great way to avoid credit card issues is by creating a budget. Having the mindset of staying within a budget when using a credit card will cause fewer headaches because you’ll have a firm understanding of what you can spend and pay off in a given period.
One of the best credit cards practices to get into is paying most, if not all of the balance in full every month. When receiving their credit card statements, many credit card holders will pay the minimum balance and that’s about it. For most cards, the minimum payment amount comes to only $20 to $30 per month. With high interest cards, being able to pay off a balance could take the card holder anywhere from a few months to years to pay.
Just like paying the majority of the balance, making your payments on time is similarly as important. If you can only afford the minimum payment on a card one month and you know it will be paid off the next month is alright just as long as it is on time. If a payment is late, there are various penalties that no one wants. If you are late often, your credit card company will increase the interest rate. This will not only increase you balance, but will also damage your credit score. Having the ability to pay the credit card on time will increase your credit score.
Many people are not aware that some credit cards come with great benefits. Many card holders offer things such as cash back, rewards for various things, or low interest rates. When used properly, credit cards can actually make money for you. When used often, rewards that cards offer could be put towards your current balance to pay it off. Some card companies offer rewards programs where you get a percentage back on various types of purchases or a sum at the end of a statement or yearly.
As well as offering rewards, credit cards can help establish and improve credit. Many companies offer both student and secure cards. With secure cards, the holder puts an amount of money into an account, and that amount becomes their credit limit. The card holder will get whatever money they put into that account back in full when the card becomes unsecure. An unsecure card is where there is no collateral against the card and it becomes a normal credit card. Student cards are usually offered to those who are staring to establishing credit. Typically, these cards are usually have with low limits as well as interest rates. Both are great choices for those looking to establish and or build credit while learning to manage a credit card.
When they are used responsibly, credit cards can be great to have. Being able to budget and use a credit card is a great personal finance step for a person to take. Staying out of credit card debt is easy as long as you know what is affordable to you and you can pay off your balance on time every month.