Credit Cards. The “OG” of the buy now pay later clan. People either love them, hate them or, in some cases, fear them.
The Love: Credit cards are convenient. They often come with benefits, discounts and various perks for cardholders. When used correctly, credit cards can be helpful in managing your personal finances.
The Hate: It is very easy to get in over your head with credit cards. Credit cards are expensive with some of the highest interest rates available. If you are only making minimum payments, it can take years to repay the smallest amounts.
The Fear: There are those who won’t even apply for a credit card. They don’t want the responsibility of the card and/or are afraid they will mismanage it.
To be honest, I can see validity in all three mindsets. However, credit cards are not the enemy, and they aren’t your best friend either. Credit cards are a financial tool. And like all financial tools, they require self-discipline and management.
- Do not charge what you don’t have. I know this seems to defeat the purpose of a credit card, but making this a rule is a good way to avoid going into debt. Treat your credit cards as an extension of your checking account, and if you don’t have the cash in the account, then you don’t charge the card.
- Pay the balance IN FULL each month. One sure way of avoiding paying the high interest rates charged by credit card companies is to pay the balance in full each month. If you abide by the tip of not charging what you don’t have, this will be a lot easier. The goal is to not allow balances to roll over to the next month.
- If you are unable to pay off the credit card, pay more than the suggested minimum payment. Consistently paying the minimum payment will cost you more money overall, and cause it to take longer to pay off the balance. For example, if you charged $1,000 and only paid the minimum payment, it would take 2 years and 9 months to pay off the card and you would pay $923 in interest. This is assuming you didn’t make any additional purchases! Calculate your own with BankRate’s Minimum Payment Calculator
- Treat charges as a loan, because that is exactly what credit card charges are…a loan. Each time you swipe your card you are agreeing to a small loan. The credit card company agrees to pay for your purchase in exchange for you repaying the amount PLUS a fee (aka interest). So like a loan, create a repayment plan. Utilize a credit card repayment calculator to help you determine a payment you can afford and how long it will take to repay. Calculate your monthly payment before you make the purchase. Also, stop using the card until it is paid in full.
Credit cards don’t have to be the “bad guy”. There are ways to successfully use credit without going into major debt. However, you have to use the cards wisely and with care.
Until Next Time♥…
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