6 Essential Practices for Having a Credit Card

Show Notes

Credit cards are a powerful convenience that can make your life easier OR a lot more difficult. It all depends on how you use them. We’ll talk about that on Faith and Finance. 

• First, we want to give a shout-out to Faith and Finance contributor Art Rainer for a great article on this topic: “6 Essential Practices for Having a Credit Card.”
• One of the questions a lot of people ask is, “How do I get a credit card?” It could be for themselves, or maybe their teenager, or even a friend. How do I get a credit card?
• But we’re almost never asked, “How do I use a credit card? So what are the essential practices for using that slip of plastic in your wallet?
• ESSENTIAL TIPS FOR USING CREDIT CARDS
• 1.Limit the number of credit cards in your wallet or purse. You can get into a lot of financial trouble with just one credit card. Imagine the damage you can cause with four or five of them.
• If you must have two, make sure it’s for a good reason. For example, perhaps one is personal and the other for business. Also, do not get a store credit card for any reason. They have ridiculously high interest rates. Bottom line, if you have a fistful of credit cards, you probably have a spending problem.
• 2. Never carry a balance.  Credit card interest rates are always high, but in the past year they’ve gone up considerably due to the Federal Reserve raising rates to curb inflation.
• Art uses the example of purchasing a furniture suite for $5,000 with a card that charges 20%. Making only the minimum monthly payments of $200, it will take 12 years to pay off the balance, and the real cost with interest will be nearly $8,500! So the first time you can’t pay off your balance, consider chopping up your card. You won’t regret it.
• 3. If you’re not on a budget, don’t use a credit card at all. That makes a lot of sense. If you don’t know how much you have to spend, even for essentials like gas, groceries and clothing, how do you know when to stop buying things? Your credit card certainly won’t tell you.
• At least if you’re not on a budget but you’re using cash only, you have to stop when the money runs out. With a credit card, you don’t have to stop. You can keep spending your way right into debt. So, no budget, no credit card.
• 4. Don’t play games with credit cards. That means don’t hop from one card to another as you transfer balances to get a low introductory rate.
• Remember, you’re not supposed to carry a balance at all, but if you do, the last thing you want is to keep opening up new card accounts. For one thing, there’s usually a transfer fee of 3% or more, so you’re actually adding to your balance. Plus, if you don’t cancel the first card (which a lot of people don’t) you might keep using it and end up doubling your debt.
• So instead of transferring balances, use the snowball method to pay down your debt quickly, putting extra money on the smallest balance first. If you have $4,000 or more in credit card debt, contact our friends at ChristianCreditCounselors.org to get on a debt management plan. They’ll get your interest rates lowered so you can pay off your debt 80% faster.
• 5. Never get cash advances from your credit card. It’s probably the most expensive money you’ll ever borrow. The average APR on these loans is now just under 25% and on top of that, the average fee is almost 4%.
• You need to learn to live on less than you make so you can save up an emergency fund. If you have money in savings, you’ll never need to get a cash advance on your credit card.
• 6. Always pay on time. For one thing, you’ll get a negative mark on your credit report if you’re 30 days late making a payment.
• But it will also cost you money. You’ll get hit with a late fee and the card issuer can raise your interest rate just for making a late payment. So put your card’s due date on your calendar, or better yet, make your payment IN FULL the same day your bill comes in the mail. That way you don’t have to worry about forgetting to pay.
• So those are your 6 essential practices for having a credit card. If you follow them carefully, a credit card can be a convenient, useful tool. If you don’t, a credit card can quickly become a financial nightmare.

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