5 Easy Ways To Use Credit Cards Wisely and Make Them Work For You

How to Use Credit Cards WiselyWhen I was first asked to start writing about credit cards five years ago, I wasn’t even sure what the point was.

At the time, I believed that credit cards were simple products and that using them is just as easy as paying any bill on time.

After years of researching and writing about nearly every piece of information on the subject that is publicly available, (and some nuggets that weren’t), I learned that these little plastic cards are complex, yet powerful financial products.

In fact, I realized that most credit card holders don’t use their cards to their full advantage. If you are not following these simple rules, you are not either:

1. Always pay your balance in full and on time. This is a basic tip, but I can’t repeat it often enough. Credit cards are unsecured debt that carry a higher interest rate than a home or auto loan. And unlike a home mortgage or a school loan, the interest you pay cannot ever be tax deductible.

2. If you can’t pay your balance in full, forget reward cards and look for balance transfer offers. There are few things as cool as earning a free flight from a reward card, but those miles are never really free if you are paying higher interest rates.

Until you are always paying your balance in full, look for a card with the best 0% balance transfer offer. At the moment, the Slate card from Chase is one of the best. Look for offers with interest free financing on both new purchases and balance transfers for several months, as well as, no balance transfer fee.

3. If you do pay your balance in full every month, you must earn rewards. Not carrying credit card debt means that you are handling your finances well and even receiving a free loan from your card issuer. Don’t just pat yourself on the back, earn as much rewards as possible from your credit cards.

I’ve lost track of all the award flights, free hotel stays, and cash back that I have earned since I started getting serious about maximizing my credit card rewards. Yet I still see people leaving valuable rewards unclaimed by using a non-reward card that they pay off each month.

If your rewards can equal 2-5% of your spending, how much are you giving up?

4. Pay your bills electronically on the due date. Remember that free loan you get when you pay your balance in full? Never pay back a free loan early! When I get my credit card bill in the mail, I toss the envelope, and log into my bank’s electronic bill payment screen.

After examining the charges, I simply enter my balance as the payment and the due date as my payment date. On the other hand, if you are still mailing a check in you must do it early in order to assure it gets there on time.

Editor’s note: Chase let’s you automate this “entire balance” payment.

5. Know your statement closing date. Your billing cycle lasts a month, and all charges made within that period must be paid in full by the next due date to avoid interest. When you know your statement cycle’s closing date, you can make large purchases the day after in order to receive another 30 days of an interest free loan.

Credit cards are more complicated that most people realize, but they aren’t rocket science. By learning these five simple tricks to responsibly managing your credit card accounts, you can maximize the value received from each of your cards.

What are your tips for using credit cards wisely?



Last Edited: July 11, 2012 @ 12:57 am
About Jason Steele

Jason Steele is an expert in the areas of travel and credit cards, specifically credit card rewards. He contributes to a variety of notable online publications. Jason enjoys traveling with his family and cycling. He's also has his commercial pilots license.

Comments

  1. smartmilmoney says:

    Jason,
    In general it’s good to only use your card when you know you can pay it off. With the exception of emergencies, this is a good practice all the time. Also, try to keep a card’s balance below 30 percent of the credit limit (e.g. don’t let the balance exceed $300 if your limit is $1,000).
     
    Always read fine print on credit card offers. Scour any credit card offer to find out when and how the introductory APR expires. That 0 percent interest for a half or whole year looks great until you make one late payment.
     
    -Christian L. @Smart Military Money

  2. This is great advice, and as soon as we pay down the $28,000 we owe on our credit cards we will be home free! :(

  3. All good points!  I try to keep track of my expenses so I never charge more than I can pay in full each month.

  4. Great point that when it comes to simple credit card advice, “you can’t repeat it often enough.” Knowing the rules is relatively simple, but following them can be a challenge. I doesn’t help that credit card companies make it easy to slip up. I appreciate that you don’t try to complicate using credit cards. Saying simple rules clearly and powerfully is always needed!
     
    Using the 0% balance transfer offers is a great tool to pay off debt that I think many do not utilize. Presenting the best offers and explaining the process is a great way to let people know of this option.

  5. I agree with everything, except perhaps the point, “Pay your bills electronically on the due date.” If your bank can’t guarantee instant bill payments, it’s not a bad idea to pay the bill a few days early. Then there’s no risk of getting dinged for interest or fees. But yes, insist on excellent rewards and only buy things you’re able to pay off.

  6. I’m currently using a credit card as a method of building credit history, simply using it about 4 times a month for petrol amounting to around £120 and then paying it off on time and in full. I think its a great method of building positive credit history.