Credit cards, used properly, can assist you in becoming financially successful, and can even make you money. The key is to be disciplined in your use of your credit card. The following 5 tips will help you get the most from your credit cards:
1. Use credit cards which offer rewards:
To optimize your credit card’s value, you need to shop around for a credit card with a reward scheme or cashback points that offer you true value. To compare schemes, look at your budget and total all your expenses which you could pay using your credit card. These are regular expenses which you already budget for, such as groceries, power, or a phone. Work out how much these expenses add up to annually, then convert this figure into reward points on different cards. From this you will be able to work out which card’s reward scheme offers you the best value for your money. As well as opting for the rewards scheme which offers the greatest monetary value, also consider your own personal preferences for rewards. Fuel vouchers are pointless if you do not own a vehicle!
2. Avoid paying too much in annual fees:
When choosing a credit card, also look for one which either does not have an annual fee, or has an annual fee which is readily absorbed by your rewards. Student credit cards often do not charge administration fees, and are worth looking into if you are a student. Alternatively, talk with your credit card provider about the credit card products they offer and how the fee structures would work based on your base rate of spending a year (this is the total of your expenses which would be paid with your credit card, as calculated above). To further avoid fees, also ensure you do not use your credit card to withdraw cash, as this often incurs further penalties.
3. Pay for regular expenses with your credit card:
Once you have a credit card which offers rewards, the next thing you need to do is make purchases with your credit card. These purchases ought to be regular and ongoing bills or large expenses which you have saved for in advance, rather than impulse buys. The key is to use your credit card for specific purchases that need to be made anyway. The more expenses are made with the credit card, the higher your reward points, so try to pay as many regular expenses as possible with your credit card. To reduce the likelihood of impulse buys, do not carry your credit card with you, or, for families, put the credit card in the name of the person who most hates spending money.
4. Pay off the entire balance every month:
Once payments are going out of your credit account, to be disciplined and pay off the entire balance every month. That’s right, the entire balance, or at least as much of the balance as you can afford. If you do not pay off the balance, you will pay high penalty interest which negates any rewards made. You might even find it beneficial to overpay your credit card, as money can be loaded onto your credit card before purchases are made, although before doing so it pays to check your credit card will still offer rewards if you do pay in advance of purchasing. Overpaying ensures you will not be left with a debt once you have paid your expenses. When you overpay your card you also allows yourself to make large purchases with your card, even if your credit limit is small. This means even with a $500 limit, you can make $1,500 purchases by loading on an extra $1,000.
5. Be aware of bad habits:
However, be aware that credit cards can lead to financial woes if bad habits of use are formed. The easiest way to land yourself in hot water is to spend your entire credit limit and only pay off the minimum repayment amount. Rule number one: do not use your card in this manner. If you do feel tempted, consider switching to a debit or EFTpos card, or using cash.
When you apply common sense and temper the temptation to treat credit as “free money”, you will be able to make money with your purchases. Credit card companies will still be happy to accept you as a customer as they make money through vendor transaction fees. Your credit rating will also improve as you will have a record of always paying off your credit card debts.