6 Tips on How to Use Credit Cards Properly

6 Tips on How to Use Credit Cards Properly

By practicing good habits, you can enjoy the benefits of a credit card rather than falling victim to it.

Credit cards are an essential financial tool if used responsibly. When used properly, credit cards help consumers build credit, which can help them secure lower rates on loans for big purchases, such as a house or car.

When credit cards are misused, however, consumers find themselves deep in debt and considered a high risk by creditors. To help, national nonprofit American Consumer Credit Counseling (ACCC) explains how one should use a credit card correctly.

“Whether you’re just starting and trying to build credit or you hit a bump in the road and are trying to rebuild your credit, it is important to know how to use credit properly,” said Steve Trumble, President and CEO of American Consumer Credit Counseling. “By practicing good habits, such as paying your bill in full each month and keeping purchases low, you can enjoy the benefits of a credit card rather than falling victim to it.”

The average American household holds $8,788 in credit card debt. Click To Tweet

According to WalletHub’s most recent credit card debt study, the total outstanding credit card debt in the US is $1.034 trillion. The average American household holds $8,788 in credit card debt. Of those with debt, 41 percent say they will be able to pay it off in less than a year, followed by 26 percent in one to two years, 24 percent in more than two years and nine percent who are unsure when they will be able to pay it off.

ACCC recommends that consumers should keep to the following rules:

1. Timely Payments Every Month

Consumers who pay credit cards on time can avoid late fees and damage to their credit scores. It is also important to pay these bills in full, as interest rate charges can add up quickly.

2. Track Spending

Consumers who track spending are more likely to stick to their budget while also keeping an eye on possible fraud.

3. Try to Keep Purchases Low

It is suggested that consumers spend 30 percent or less of their credit card limit at any given time.

4. Use Rewards Cards

Consumers should consider getting a rewards credit card so they can get cash back on everyday purchases, such as going to the grocery store or putting gas in the car. Some rewards cards can earn consumers thousands of dollars in cash back or travel points. Though there are advantages of rewards, don’t get fooled into thinking rewards are worth over utilization. If you can’t pay off your charges monthly, then those rewards can add up to the interest you are paying on an outstanding balance.

5. Advance Warning Before Travel

Using a credit card in a new location is a huge red flag for fraud. Consumers who give notice to their bank before travel avoid declined transactions and a call to the issuer.

6. Be Disciplined

It is important for consumers to tell themselves “no” when they want to make a purchase with their credit card that they can’t actually afford. Consumers should start with one credit card at first so they can learn how to manage their payments.

Image: Pixabay

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Ruth Kerr is a guest writer who writes articles on personal finance, financial planning, accounting and taxation.