Credit cards are a brilliant way to borrow money and boost your credit score, but only if they’re handled the right way. Get it wrong, and you may well find yourself nosediving into debt. To save yourself from the horror of a financial freefall, enlist the following five strategies, each of which is designed to help you manage credit like a pro:
1. Avoid impulse buys and overspending
You may have a few thousand dollars free on your card, but that doesn’t mean you should max it out. In fact, the lower you keep your balance, the better your credit score will be. To keep yourself in check, set a rule that you’ll only put on your credit card what you can afford to pay off right now.
To help with impulse buys, set a second rule that states you must wait 72 hours before buying something. This will prevent you from being dazzled by a social media ad and purchasing something without thinking. Even if you really love an item, commit to waiting three days. You’ll be surprised at how many simply slip your mind, never to be thought of again. And if it’s truly important, your brain won’t let it escape so easily.
2. Don’t fall prey to the minimum payment trap
Credit card companies always let you know the minimum monthly payment because it works out best for them if that’s all you cover. This amount is usually small and comfortable. However, if you pay it without thinking, you are doing yourself long-term financial damage. Many people keep making these repayments for so long that they end up paying more in interest than the items cost in the first place.
3. Be wary of rewards
Overspending to take advantage of rewards is another common trap. The worst financial sucker punch comes wrapped up in the cashback offer for spending a certain amount within a short timeframe on a new card. If you buy things you don’t need to hit this target, any amount you get back will eventually be offset by the high-interest rates you’ll be stuck with.
Miles rewards represent a wonderful perk that can save you money on travel and other fun things. However, it’s easy to convince yourself that purchases are “worth it for the points” when the math doesn’t add up in your favor.
4. Consider alternatives
If you really need to purchase a big-ticket item that will take you months to pay off, consider all your options before pulling out your credit card. For instance, there are small loans with low-interest rates that may work out to be more cost-effective in the long-run. If you’re going to be paying interest, make sure the rate is as low as it can possibly be. Consider alternative credit options like Zolve that offer a low APR, zero annual fee and provide credit card for immigrants who may not qualify for a conventional card abroad.
5. Don’t operate blind
Many of us juggle multiple credit cards and frequently transfer balances to the extent that it can be challenging to keep track of everything. Unfortunately, this is also the easiest way to let your debt get out of control, as forgetting even one payment can adversely impact your credit score and cost you a pretty penny in late fees. Whether you go for an old-fashioned diary, a spreadsheet, or an app, keep track of your spending and always know the balance of any credit cards you have.
Living as we do in the era of instant online credit card approvals, it’s easier than ever to end up with debt that’s out of control. However, if you stick to the above recommendations, you’ll be able to traverse the tricky terrain of credit safely.