Most people will argue that credit cards are dangerous and can easily lead one to irredeemable financial debt. Critics of credit cards say that taking this plastic card can lead you down the path of overspending, unending debt, and even bankruptcy. However, sober thinkers believe that credit cards themselves aren’t a problem but rather, how you use them.
You need to remember the fact that a credit card can be your wallet’s worst enemy or your bank account’s best friend, depending on how you choose to use it. Following simple rules will help you enjoy the convenience of credit cards and their numerous benefits without worrying about financial fallout. Here are the top five credit card commandments that you should know.
You Shall Not Avoid Using Credit
Let us be realistic; only a few individuals can survive without credit at all. If you have dreams of acquiring a home, car or starting a business, chances are you will need credit. No matter how the system may be rigged and not in favor of the consumer, you still need that credit to accomplish some of your financial goals.
Most importantly, if you want to win the game, you require a good credit score. Using a credit card regularly and paying the debt off in full and on time is the best way to build your credit score. Therefore, don’t assume that you will avoid credit cards forever and that is a fact.
You Shall Always Pay Off Your Balance in Full, and on Time
Do you know what always scare away most people from using credit cards? It is the high interest charged on a credit card debt. However, you can avoid the high interest by ensuring that you pay off your dent in full and on time, every month. Using your credit card for purchases technically means that you are receiving a 30-day loan from a bank for free.
If you have several credit cards and you notice that you won’t be able to make timely payments, consider credit consolidation to avoid the high interest. The good thing about credit cards is that it is much easier to track your expenditure as opposed to using cash.
You Shall Pay Down the High-Interest Credit Card Balances First
The logic behind this rule is quite simple. Make sure that you address what is causing the biggest dent in your wallet first. Once you are through with the card with the highest interest, pay down the card with the next biggest interest rate, and so on. To help you remember this rule from another perspective; always pay off credit cards with the lowest interest rates last since they do not damage your bank account and wallet fast.
You Shall Always Keep Your Credit Utilization Low
Just because you have a $2,000 credit limit, it doesn’t mean that you should use all of it. You need to keep in mind that doing so could ruin your credit score so badly. Always keep your credit utilization rate to below 30% to be on the safe side. If you get closer to your max limit, your card issuer may notice your risky behavior and decrease your credit card limit for protection.
You Shall Not Close Unused Credit Cards
Hide them, cut them, or do whatever you like with them but make sure that you don’t close the unused credit cards in your possession unless you are 100% sure that they aren’t going to dwindle your credit score. Typically, closing a credit card will automatically reduce the amount of credit available to you which might have a negative impact on your score.