Be a Responsible Credit Card Holder Today
With great power comes great responsibility, they say. The same thing applies to having a credit card. Owning a credit card provides a large purchasing power, only limited by your credit limit, but it also provides a large chance of creating a bad financial habit that could cripple you financially for years. Some never recover.
Now, you might be scared about getting or using your credit card but don’t worry! With this short guide, you can build a habit of using your credit card responsibly while enjoying all the perks.
Know How Credit Cards Work
To manage your credit card, you have to know how it works.
In simple terms, a credit card is a revolving line of credit that permits you to make charges at any time up to your credit limit. Or in short, every swipe corresponds to a loan from the bank – the loan that pays your purchases or bills – that you pay at the end of the paying period.
Unlike a business or home loan, credit cards don’t necessarily have a fixed end date and regular monthly payments. Instead, you can choose how much to repay for each month – a minimum payment, a partial payment, or your entire balance. Ideally, a responsible credit card user always pays their balances in full every month. This is to avoid paying interest.
The bank usually gives you a grace period – around 20 to 30 days – during which you can pay off your purchases before interest begins to accrue. This is how banks earn millions from credit card users.
Knowing this helps you realize the power and responsibility of using a credit card. Best case, you maintain a good relationship with your credit card provider by paying everything on time. Worst case, you find yourself in bankruptcy or in the brink of bankruptcy the more you use your credit card. This will negatively affect your credit score and you will have trouble getting a car loan or an apartment lease.
Although it’s intimidating, you don’t need to fully associate credit cards to debts. There are many benefits to having one, including convenience and different perks and benefits.
Credit Card Perks and Benefits
Responsible credit card usage brings forth countless perks and benefits. Here are six benefits you can look forward to:
1.Build your credit score
This is one of the main reasons why people avail of credit cards. While it’s not entirely true that getting a credit card is the only way to build your credit, it is one of the fastest ways.
By availing a credit card and regularly paying it off, you’re proving to be a responsible loanee that credit card companies look for in an applicant. Another advice, try not to exceed 25 percent of your credit line to keep your utilization ratio low. The lower your utilization ratio is, the better it is on your records.
2.Earn cash back or other rewards
Every credit card advertisement endorses their card’s cashback and rewards system, whether it’s for shopping, dining, or traveling. Using your credit card wisely can actually avail you of large percentage cash backs so you can earn why you spend.
To avoid the trap of spending too much and too leisurely for small rewards, make sure that you’re only spending money on things you can afford and pay off at the end of each billing period. Discipline is key. Don’t chase rewards, they’re just a plus – not the goal.
3.Track your discretionary spending
Knowing where you’re spending money is the first step in taking control of your finances. Having a credit card can help you manage your finances because you can easily view your expenses online and in real-time.
Credit card applications also automatically categorize your expenses, showing you which categories you’re spending the most on. It also shows you if you’re over the 25 percent utilization rate.
4.Pay for a large purchase over time
Not everybody has a large amount of money on hand to pay for expensive fees, bills, and items. Ideally, you’re using a card with a 0 percent intro APR to allow you to stagger your payments.
However, in cases like this, it’s best to consider whether or not a personal loan will be a better option to finance your purchases or bills.
5.Have an emergency line of credit
Ideally, you have an emergency fund before having a credit card. However, in trying times, credit cards can also serve as your emergency line. To keep it active and strictly for emergencies, use it only a couple times a year and pay it off right away.
This way, you can keep your credit card and have it on-hand during emergencies.
6.Get fraud and purchase protection
Unlike in debit cards, when a credit card gets hacked, money is not coming out of your account and thus, you don’t have to pay for bogus charges. As a customer, having a credit card protects you in the form of purchase protection. If the merchant doesn’t hold up their part of the deal, then the money will not be sent.
In summary, getting your first credit card is exciting. Swipe here, swipe there, and you get all the things you want to buy. But you can easily rack up thousands of dollars of debt with all the excitement. However, with proper discipline and enough knowledge, you can enjoy the perks and benefits of a credit card carefree.
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