Credit cards have become an essential part of a person’s finances. It is the basis for your credit history and can have positive or negative effects on your daily living. Depending on the type of credit card you get, it can offer various perks and benefits.
Along with those benefits are also risk prevention for fraud and theft. The great thing about owning a credit card is that unlike physical money, credit cards can be disabled when stolen and replaced upon your request.
Despite being powerful tools, credit cards can cause you major disadvantages. If not used in a responsible manner, you might end up accumulating a lot of debt that can be overwhelming. A recent study by CBS News showed that an average American household ends up accumulating around $7,200 of credit card debt.
With each passing year, this value continues to increase. Racking up a large sum of debt is something you would want to avoid when using your credit card. With credit card debts on the rise, more and more people are having problems with paying off credit debts.
According to Lexington Law, “as of March 2019, Americans have an outstanding $1.057 trillion debt in total.” This total amount continues to grow at an overwhelming speed. As such, the total amount has even exceeded the revolving amount of credit debt during the Great Recession back in 2008.
How Credit Cards Work
Credit cards work by allowing its users to use a limited amount of credit to make purchases and transactions from various merchants.
According to Money Under 30, banks issuing these cards loan the users money. In turn, the loaned money turns into credit debt that needs to repaid each month. After a transaction is made, the issuing banks give you a grace period which is a typical 20 or 30 days.
During this period, you are able to pay for the credit amount used without having to worry about incurring any interest in your debt. Interest fees are just paid when you fail to pay for your credit card balance on time.
Building up debt while using credit cards have a lot of negative effects. Having unpaid balances can disable you from claiming benefits and rewards that come with your credit card subscription.
In order to prevent people from having debts they can’t pay, requirements in getting a credit card have been enforced in a strict manner. In the earliest days of credit cards, they were just given to everyone. As you can imagine, it caused chaos but that story’s for another day.
Best Ways to Use Credit Cards
Although credit cards offer a lot of benefits, as mentioned earlier, using them in an irresponsible manner can also cause severe consequences. In order to make the most out of their advantages, you will need to learn to effective strategies on how to better use your credit cards
1. They are useful in emergency situations.
2. They offer credit card security to prevent theft and fraud.
3. They offer a lot of perks and benefits that include cash rebates and other rewards.
4. They can also help you build a positive credit history.
These are just some of the great things about owning a credit card. To be responsible for using these powerful tools, you need to also learn how not to use credit cards. Here are some of the best ways to use your credit cards to your advantage.
Build a Positive Credit History
For people who are new to using credit cards, getting one to establish a positive credit history would be a good place to start. For this step, you have two choices: secured or unsecured credit cards.
According to Credit Karma, if you are planning on availing secured credit cards, you will need to deposit a specific amount into the bank, which is refundable at any time. The deposit is needed as a safety bond for when you become unable to pay for your credit card balance.
On the other hand, unsecured credit cards do not require a deposit. This type of card is given based on your credit score and history. Requirements for this type of credit card are more complicated than secured credit cards.
Know that credit scores matter a lot. While credit cards are used by most Americans, a lot still have not much or have the wrong idea about credit scores.
Here are some interesting statistics from Credit Card Insider:
- 21% of adults claim that they check their credit scores every month.
- 18% of adults belonging from the age range of 18 to 24 do not check their credit scores at all.
- 61% of the American population believes that their monthly/annual income affects their credit score and history (it doesn’t!)
- 19 million of the total American population have credit histories that have become so bad that they are unable to get a decent credit score.
Building a positive credit card history can be achieved if you pay for your balances in full and on time each month. Missing credit payments hurts your credit score.
Paying Off Debts
According to Women’s Daily, there are credit cards that have features like 0% APR for a specific amount of time. This is something that you can avail of in balance transfers. Balance transfers work by transferring a credit balance from a high-interest card to another card that has a lower APR.
This will help you focus on paying for the actual credit debt since there are lower interest rates on the other card. Thus, interests incurred from late payments will be lower as compared to the initial card used for the transaction.
Earn Rebates and Rewards
In order to earn rewards, you should first take into consideration how you will be using the card. Will the card be used for travel? Shopping? Or just for everyday expenses. Once you identify the purpose of your card, you can then pick on based on your needs
The great thing about owning a credit card is the fact that some of these offer amazing perks and benefits. Most top credit cards in America offer rewards like miles to be used for free travel, points that are convertible to cash and cash rebates from transactions. There are credit cards that focus on cash backs and rewards.
With whatever you do, it’s important to ensure that you are able to pay off credit payments each month. Now that you know the 3 best ways to use credit cards, apply what you’ve learned for you to make the most out of your credit cards. Begin today in building your credit history.