Using Credit Cards Properly

These days, credit cards are a very well known financial product. As a matter of fact, the average American household has more than 1 of these small pieces of plastic floating around somewhere! With so much use of credit cards, we are bound to eventually see some consumers paying high interest rates and fees simply because they didn't understand how to properly use the card they had. The reality is, credit cards are an awesome financial tool! They are the Jaguar of lending products but, if you don't drive a Jag like you should, you are going to crash! This is the same when it comes to credit cards and any other lending products. Here are a few important factors to remember that will help you to use your credit cards properly:

Factor #1: Compare Offers To Start On The Best Foot

Before you can use credit cards properly, you need to make sure that the card you use is the best fit for you. There are several different types of offers out there and each one is designed to appeal to a specific audience. Therefore, finding the best card for you may take a bit of searching. But, it's well worth the effort. Here are the steps to comparing offers and finding the best credit card for you:

Step #1: Figure Out What Kind Of Card You Are Looking For: There are few people that apply for a credit card just to have one. Depending on the reason you are applying for your card, there will be different offers that are best suited for you. For instance, if you would like to build your credit scores, you may want to look into secured credit cards. If you want cash back with every purchase you make, you are going to want to compare cash back credit cards. If you want to transfer a balance, you are going to need to compare balance transfer credit cards. The first thing you should do is figure out what type of credit card provides the benefits you are looking for.

Step #2: Make A List Of 3 To 5 Offers: Now, make a list of 3 to 5 different offers that provide what you are looking for in a credit card. There may be hundreds of offers that meet your needs so make sure to only add offers that jump out at you to your list.

Step #3: Compare Interest Rates: Chances are, you are going to carry a balance from month to month, that's what credit cards were made for. If you do however, you will find that the interest rates you pay will be the highest fees you are charged. With that said, it's incredibly important that you compare these interest rates. Remember there are four different types, promotional, standard, cash advance and default interest rates. Compare them all before moving on to the next step.

Step #4: Compare Fees: The truth is, the interest rates you pay will not be the only fees that you are charged. When it comes down to it, each unique credit card offer will come with it's own unique set of fees that will be charged to consumers. Before choosing the card that is a best fit for you, make sure to compare the rates and fees sections of the terms and conditions for each of your credit card candidates!

Step #5: Compare Promotions And Rewards: Now, it's time to get into the fun parts of having a credit card, the promotions and rewards. Although they should not be the overwhelming basis for your choosing one credit card over another, they are fun and should be factored into your decision. Check out the different rewards programs. See how you can accumulate points and what they can be redeemed for. Look to see if the card comes with a promotional interest rate. Now is the time to get caught up into the promotions and rewards. They make a great tie-breaker!

Factor #2: Keep Your Payments In Order

Your credit card payments are some of the most important payments that you will make. As a matter of fact, credit card payments can have an incredible impact on your credit score, positive or negative is really up to you! There are 2 things to keep in mind when it comes to credit card payments...

  1. Never Make Minimum Payments – Making minimum payments on your credit cards will not do much for you. Your credit card payments are calculated based on your balance so, if you make minimum payments, it will take forever to pay your debts off. Also, consumers who make minimum payments only are generally facing a financial hardship. Therefore, by making only minimum payments, you become more of a risk to your lenders!
  2. Always Make Your Payments Early – No one should ever wait until the due date to make a payment. Doing so simply opens you up to an emergency that may cause you to make your payments late! Not to mention, paying early always looks great on your credit report.

Factor #3: Don't Let Your Balance Get Out Of Hand

Overspending on credit cards is one of the leading causes of financial hardships! Don't let this happen to you. Below are 2 ways that you can tell your spending is under control:

  1. Your Balance Is Below 50% Of Your Credit Limit – Keeping your balance below 50% of your credit limit is a must. This will allow for a cushion to fall on in the case of an emergency. However, consistently spending more than 50% of your credit limit is a sign of financial struggle. This may cause you to be more of a risk to your lender. If your balance is below 50% of your credit limit, you're probably fine. If not, it's time to get your spending under control.
  2. Your Balance Is Less Than 10% Of Your Annual Income – Revolving debt to income ratios are also a great way to go when figuring out if you have your spending under control. If your total credit card debts amount to more than 10% of your annual income, you may want to buckle down and start paying your balances down a bit!

This article was written by Joshua Rodriguez, proud owner and found of CNA Finance and avid personal finance writer. Join the conversation with Josh about this article or any personal finance topic of your choice on Google+!

Image thanks to American Express.

2 thoughts on “Using Credit Cards Properly”

  1. Josh, this is a great article. In these economic times we all need to be reminded of the best way to keep our finances in order...especially credit cards. Thanks for the great info.

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