You can use credit cards responsibly by following a few simple tips. Many people are afraid of using credit cards. They see them as some evil tool that will ruin you financially.
Yet others, like me, see credit cards as a useful tool that can help you manage your finances well.
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Here are a few tips to help you use credit cards responsibly.
Use the card.
You need to actually USE the card to gain any benefits. The best way to start if you are afraid of using credit, is to start small.
Pick one constant amount that is small and that you know you can easily pay off. This is something you would normally use debit or write a check for every month. You could use your phone bill for example. Now you can simply use your credit card to pay that one bill. Then you debit the amount or write the check to the credit card company.
By making this simple change you are building up credit in a responsible manner, and you are paying off the phone bill in full.
After a few months you can always add another bill or spending category from your budget to your credit card. The key is to make sure you have the money on hand to pay off the bill. You also need to be careful to stay within your budget and not overspend just because you are spending on a credit card.
Pay the card on time.
You need to make sure your payments are on time EVERY time. This means you need to send out the payment early enough if you are writing a check. Even if you use the debit function in your bank it may still take up to 24 hours for the payment to go through.
img from foundationsoffinance.com
One thing you need to think about is that credit cards have different cut off times for payments. Just because your payment is due on the 25th of the month for example, it does not mean at midnight. Some cards have a due time of 2 pm that day, while others may have a 5 pm deadline. If you make the payment a few days in advance you lessen the risk that your payment is received after the cut off time.
Pay the balance in full.
Paying off the balance in full every month will save you in interest and fees! Credit card companies make a lot of money by charging those who carry a balance. As with the point above, if you are one minute late with your payment then you will trigger these charges.
img from freedomfromstudentloans.com
You should ALWAYS pay your balance in full every month. Every. Single. Month.
If you started with just one bill or item then this would be very easy. Even as you add in more items on your credit card, you will still pay the balance in full.
If you follow these simple tips above you should be able to use credit cards responsibly.
“There is no responsible use of credit cards”
– Dave Ramsey
And when someone question this, he goes mental. If one asks Dave to make a distinction between those who pay in full each and every month, vs those who carry a balance month to month, along with interest, that will only energize him further. He with cite a mythical study by D&B that “proves” that card users spend 10% more than those who pay with cash. Unfortunately, he never offers the source material. Paper vs plastic studies all fail to prove a thing, as they make no distinction between the two groups. I’d be the first to agree that those carrying a balance probably are wasting money. The studies also fail to scale. i.e. they do a great job proving that students will spend a $100 gift card differently than $100 cash. But of course, this means nothing when one has a $80K/yr budget.
Nice article. I am ahead by tens of thousands of dollars for having used my cards wisely.
That is crazy to think he believes there is no responsible credit card use. If you treat your credit card like a debit card then you don’t pay fees since you never carry a balance!
As for the 10% greater spending I guess that might be true in some cases. When your stack of cash is gone there is no more spending. However when you have a card you can always spend since you have about 25 days to pay it off and usually you would have gotten a cash inflow by then.
But to generalize and say ‘All’ people do this or that is just wrong. I enjoy my cash back and won’t give up using my cards.
The mantra is to treat your credit card as credit money – exactly what it is. Like you have mentioned, using it as you would your debit card, then you are going to drain it soon and incur heavy losses in the long-term. I often do not recommend credit cards to people because why have them when have debit cards and net banking?!
Thanks for your comment. I don’t understand why you assume I would drain my account by treating my credit card like a debit card and paying it off every week. The point of how I use my cards is that instead of waiting 21 days to pay it off I pay it weekly to ensure I do not pay interest. Yes I am using my money faster that way but it has worked for me all this time.
Hi Lulu, is that even possible to pay it off weekly? If that’s true, I might as well revisit that offer my bank recently sent me…
Jim, of course you can pay your card weekly if you ‘push’ the payment from your bank to the card. If you allow the card to ‘pull’ the payment there may be a restriction. I know some cards will not allow you to make 4 payments in one month that way.
great post thanks for sharing.
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