Using Your Credit Cards Wisely

The credit card is the culprit behind many Americans’ huge debt today. This handy piece of plastic is so useful and convenient that we often manage all our shopping without money just by swiping our credit cards at different stores and outlets. It is only when the credit card issuer sends you your bill that you actually realize how much you have spent. If you have run up enormous debts because of your credit cards, then chances are, you are seriously considering cancelling all the cards you have. Instead of doing something this drastic, you can simply start using your cards wisely.

Keep Your Balance Low

A good formula to follow is to keep your card balances below 30% of your available credit. This gives you enough leeway even if you happen to need more finances to meet an emergency. It also lets you keep your card spending well within manageable levels. Keeping balances low also has a bonus in the form of boosting your credit score. Your debt to available credit ratio is an important factor when your credit score is determined. By using only a third of the credit available you skew this ratio in your favor.

Bring Out Your Old Cards

If you have some old credit cards that you do not use frequently though they are active, then it’s time to bring them out of cold storage. By doing so you can avoid accumulating huge balances on a limited number of frequently used cards. Old cards where you have a long history of timely repayments can be a real bonus to your credit score.

Never Use Cards as Substitutes for Cash

Getting into the habit of pulling out your card whenever you need to pay for anything can prove costly. Avoid using cards as a substitute for cash when you shop for everyday items or during a shopping spree. More importantly, never use cards to pay for things you cannot afford in cash. This is a common mistake made by many credit card holders. When you are making a purchase, keep in mind that if you cannot afford to pay for it today, you probably cannot pay at the end of the month when you get the credit card bill either. Any unaffordable purchase will end up as unpaid balance on your card and will continue to grow in size every month.

Make Maximum Payments Each Month

Always pay your balances in full every month or at least pay the maximum amount you can. Getting into the habit of paying the minimum is beneficial only for your card issuer. Minimum-only payments make your debt grow at an alarming pace aided by interest and penalties and also elongates the time you will need to become debt free.

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