How to Use Credit Wisely

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For most consumers, credit cards are a fact of life. Ideally, they are only used in the event of an emergency: a vehicle repair or fixing a leaky roof. In reality, consumers charge all sorts of purchases to their credit cards. Often these purchases are not emergencies or necessities. Rather, though they may feel like necessities at the time, these purchases simply fulfill the consumer’s wants. Consumers keep a few points in mind as they wrestle with paying credit card debt. The way to get a handle on such a problem is never by ignoring it. Consumers can get on top of it instead by taking an honest look at what they owe. That entails not just outstanding balances, but also annual credit card fees and interest rates.

Pay in Full

Using credit does not have to be a bad thing. If the consumer is able to pay off their credit card balance in full each month, then they are not paying exorbitant interest rates and the items purchased cost little more than their price tag value. The danger where credit cards are concerned is in carrying a balance endlessly, with no plan in place for paying it off.
Prioritize the Payment The consumer who has chosen to pay off all or even some of their credit cards can easily rank them in order of urgency. It is typically advisable to pay off the card that has the highest interest rate first. This is the card that will cost the consumer the most money over the course of the years it may take to pay it back while making only the minimum payment. Credit card users can stop that trend by putting all of their extra money toward paying off that bill. Anytime a few extra dollars comes into the consumer’s bank account, it should go directly to the credit card. Though it takes discipline, even just a few extra dollars each month can add up very quickly. Seeing the balance drop month after month is usually all the motivation the consumer needs to keep on the right path.

Just Get Rid of the Cards

Cutting up credit cards is another good way to limit debt spending. It doesn’t hurt to keep one or two. After all, emergencies happen and a credit card is one way to be prepared. However, the consumer should think twice before actually contacting the credit card issuer to cancel their account. This maneuver slashes the consumer’s available credit and can adversely affect their credit score. Destroying the card without closing the account is the best route. On the other hand, if the card charges annual fees whether it’s being used or not, it may make sense to close the account. Using credit is a matter of balance. It’s difficult to strike just the right stance between using it wisely and relying on it too much. But with discipline and thoughtfulness, most consumers can make credit cards work for them rather than finding themselves working for credit cards.

This is a guest post by Matt H., a financial writer for