In a world where cash is no longer king, credit cards have emerged as indispensable tools for navigating the complexities of modern living. Indeed, our much loved ‘plastic money’ offers unparalleled convenience and flexibility, simplifying transactions and accommodating our fast-paced lifestyles.
However, when it comes to credit cards, we’re all familiar with disaster stories. Whether it’s friends and family who haven’t been able to pay off their balances in time or cautionary tales of reckless spending, these narratives serve as stark reminders of the challenges that come with credit card usage. But fear not. The good news is that the art of credit spending is something you can easily master to ensure your money works for you, not against you.
Here’s how you can get started.
1. Pay Your Balance On Time (And In Full)
The most crucial element of masterful credit spending is none other than paying your balance on time, and in full, so as to avoid costly interest charges. This is the golden rule of credit card usage, and it plays a huge role in ensuring you aren’t bogged down by an endless cycle of debt.
For starters, consider looking into 0% balance transfer credit cards. These cards allow you to transfer existing high-interest debt to a new card with a 0% introductory APR for a specific period. By doing so, you can save significantly on interest payments, giving you the opportunity to pay off your debt faster.
You can also set up automatic transfers to ensure your balance is settled promptly every month, avoiding panic if you’ve forgotten or missed a deadline. It’s also a good idea to cultivate a habit of mindful spending, so you aren’t faced with an exorbitant balance that you’re struggling to keep up with at the end of each month.
2. Choose The Right Credit Card
If you’re new to the world of credit cards, one of the most important things is choosing the right type of card for your individual needs. With so many different cards available to choose from, this can prove challenging. Generally, the key things to take into account when choosing the right type of credit card include your spending habits, financial goals and lifestyle.
For example, if you’re someone who travels frequently, you may want to consider a travel rewards card that offers points or miles for every dollar spent. Alternatively, if weekly groceries or petrol make up the bulk of your spending, choosing a credit card that offers cash back on these categories may be a better choice. Ultimately, it boils down to what aligns most seamlessly with your daily life, enabling you to make the most out of your credit card usage.
3. Set A Realistic Budget
When it comes to mastering the art of credit spending, nothing is more powerful than a realistic monthly budget. A budget plays a key role in helping you stay on top of your monthly expenses, leaving enough wiggle room to pay off credit card balances at the same time. If you’re new to budgeting, the good news is that it isn’t actually that complicated.
Start by making note of your recurring monthly expenses such as rent, utility bills, and groceries. These are the non-negotiables, and they form the foundation of your budget. Next, think about how much you will spend on non-necessities such as eating out, movies, and entertainment.. While these may not be “essential expenses”, it’s still realistic to factor them into your budget.
Once you’ve figured out exactly how much you need each month, set aside a specific portion of your income to ensure you can cover your expenses. Ideally, you’ll want enough leftover to pay off your credit card balance, so a bit of tweaking may be necessary at first. If all of this sounds like too much time and effort, the good news is that there are numerous personal budgeting apps at your disposal, making budgeting a lot faster and easier.
4. Only Use Your Credit Card For Big Purchases
One of the biggest traps people fall into is the impulsive use of credit cards for small purchases. While $20 at the supermarket or $100 at the nail salon may not seem like much at first, the sneaky accumulation of these expenses can quickly take a life of its own. This is why one of the smartest strategies when it comes to credit spending is only using your card for big purchases that offer benefits – such as rewards or points.
The easiest way to do this is to ensure you’ve saved up enough cash or alternative funds for a big purchase, and then make use of your credit card for it. This way, not only will you be able to pay your balance off immediately, but you’ll also reap the benefits that come with using your credit card wisely. It’s a win-win situation – you enjoy the perks, build up your credit score, and maintain your financial stability.
5. Use Your Credit Rewards Wisely
While we’re on the topic of rewards, it’s important to mention that while they can be incredibly beneficial, using them wisely is key. Sure, that fancy gadget or luxurious spa treat may be tempting, but do you really need it? As a general rule, avoid redeeming rewards that you don’t need, or simply don’t really want.
Instead, consider using your credit card rewards for more practical purposes such as cashback or gift cards for essential purchases. This way, you’re not just enjoying perks; you’re also making your money work for you. Thoughtful choices with your rewards can lead to long-term financial gains.
6. Avoid Maxing Out Your Card
Finally, if there’s one thing you should definitely avoid, it’s maxing out your credit card. This is because not only does doing so put a significant financial strain on your monthly budget, but it also signals potential financial distress to creditors. Not to mention, did you know that maxing your card out can cause your credit score to drop by as many as 50 points? That’s something you definitely want to stay away from.
As a general rule, you’ll want to keep your credit utilisation ratio below 30%, as this demonstrates responsible credit management. By keeping your credit utilisation low, you’ll safeguard your credit score, ensuring it remains robust for future endeavours like buying a home or starting a business. Remember, your credit card is a tool, not an endless source of funds. So, avoiding the temptation to max it out will help to ensure a stable financial foundation.
And there you have it — everything you need to know when it comes to mastering the art of credit spending. Whether you’re eyeing up that dream vacation, planning for a major investment, or simply aiming for financial security, these tips can serve as your roadmap to success. Remember, it’s all about making your credit card work for you, not the other way round!
