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How to Use Credit Wisely

Credit cards and loans may be powerful tools to help enhance your quality of life, but there could be too much of a good thing. The trick is to know how to use credit wisely.

It’s important to think of credit as a resource, not “free money for now.” One way to manage your credit cards is to actually have the money available to pay off the debt as soon as possible. If not, you may find yourself spiraling into a hole that you can’t climb out of easily.

In other words, credit may be good if you can control its usage. Here are a few things to keep in mind, especially after you obtain your first credit card.

13 Tips on How to Use Credit Wisely

1. Make your monthly payments on time.

You may have heard this repeatedly, and it’s true for several reasons:

  • Paying your monthly debts on time may help improve your credit score by showing that you are a responsible borrower.
  • Late payments may mean penalty costs.
  • Late payments may reduce your credit rating.

Setting up automatic payments may help to keep you on track. If you do choose this option, however, keep your eye on your account to make sure you have enough money in it.

2. Do not buy things you can’t afford.

Before using your credit card to make any purchase or pay any bill, think about how you will pay it off. Do you have the cash on hand, for instance, or will you obtain it within the next few weeks? If you don’t know where you will ever get the money to pay the debt back, you may wish to pause the use of the credit card.

3. Do not let your debt go above 50 percent of your credit limit.

In fact, you should keep your debt closer to 10 or 20 percent of that credit limit. Having too much debt may reflect poorly on your credit score, and it’s simply stressful. Additionally, the more debt you have, the more the interest will accumulate in most cases.

4. Use a credit card for one-time, unique, or crucial expenses, not for everyday expenses.

Do you have a family trip planned, or do you need to buy an instrument for your child’s band class? Using a credit card responsibly for special events and one-time purchases is fine, but don’t use it for everyday expenses like gasoline, groceries, and dining out. If you do, that may get out-of-hand very quickly.

5. Do not use your credit card to pay off another credit card … unless you recognize an outstanding option.

Consolidating debt may be helpful for some people, but only if they are committed to actually paying off the debt on time. If you’re moving debt from one credit card to another just because it seems like a good option, you may find yourself owing money on multiple credit cards. Learn more about debt consolidation in this blog.

6. Be smart about introductory no-interest terms.

Don’t splurge just because you are offered an introductory no-interest term, and make every effort to pay off the debt on that card before the no-interest term expires. Once it expires, all that interest would likely appear on you next bill, and you may even have to pay certain fees.

7. Don’t use cash or debit cards if you’re in financial trouble.

Continuing to use your credit card may only make matters worse. Rather than using the credit card, see where you can reduce expenses.

8. Pay more than your monthly minimum.

When you do so, you may reduce interest costs and decrease the overall debt faster. If you only make the minimum payment, it may take you years to pay off that debt, resulting in a significant amount of interest over time.

9. Try to ask your creditor to decrease your credit limit.

Yes, decrease … not increase. With a lower credit limit, you’re less likely to overspend.

10. Read the fine print.

Read the fine print before applying for a credit card, and compare options. Some credit cards have an annual fee, while others have monthly fees that end up costing more than the annual fee. Some charge a higher late payment penalty than others. And then some will increase their interest rates after a certain period to a rate that’s higher than their competitors would. Compare and contrast these options to choose the best credit card for you.

11. Make a monthly budget for your overall expenses and stick to it.

Having a budget in place may help you stay on track with your expenses. Many financial advisers suggest creating a budget using the 50/30/20 method:

  • 50% is for necessities like rent, gasoline, and essential groceries
  • 30% is for optional items
  • 20% is for savings and/or to pay off debt

12. Minimize the number of credit cards you own.

Having one or two credit cards may improve your credit score, but having too many may reflect poorly on your credit rating. Additionally, with too many cards, you may find your debt spiraling out of control.

13. Check your monthly statements for accuracy.

If you didn’t make a particular purchase, get the discrepancy corrected. Contact your creditor to find out how. See this blog to learn how to correct errors if your credit card is through Georgia Heritage Federal Credit Union.

Listen to Our Podcast to Learn More

For more information and tips on how to use credit wisely, listen to Regina and Daileen’s podcast on www.gahertagefcu.org.

For general information or answers to specific questions about credit, speak with one of our associates. Contact Georgia Heritage Federal Credit Union by sending us a message through our website or calling us at (912) 236-4400.

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