How to Use a Credit Card Wisely

How to Use a Credit Card Responsibly
by Bola Sokunbi
November 08, 2016
Credit card companies are deemed evil by many people, especially after they've racked up big bills and are paying high interest.
But don't be too quick to point fingers. When it comes to using a credit card responsibly, it's a good idea to take a look at your own behavior with credit cards. First: for the most part, irresponsible use of credit cards is what really gets people in trouble.

Yes, credit really means debt. It's a seemingly insidious bit of word play; however, there are many perks to using a credit card. With responsible use, you can still get benefits while remaining debt-free. And spoiler alert: responsible credit card use requires discipline. If this is something you struggle with, then stick to your debit card.
If you are actively using a credit card, you should be using it responsibly. Otherwise, you can get yourself into some serious financial trouble where the money has been long spent and the bill (plus interest) remains.

Before we get into how to use credit cards responsibly, let's first talk about how credit cards work and their benefits.

How do credit cards work?

Money on a credit card is essentially an advance loan. When you use your credit card for a transaction, the credit card company is loaning you money in advance. Usually, you will have a grace period of about 30 days to pay it back. If you pay your balance off in full before the grace period is up, you will not get charged interest. The trouble is, most people don't and they go over their grace period, resulting in them paying interest. This is how credit card companies make money.

What are the benefits of using a credit card?

There are quite a number of benefits to using credit cards, including:

Security

Credit cards are safer than cash in that if they get stolen or are used for fraudulent spending, you can report it and you will not be responsible for fraudulent charges.

Rewards

Many credit card companies offer rewards like travel miles, cash back on your purchases, or points that can help you save money on future transactions. Keep in mind, however, that carrying a balance that you can't pay in full each month isn't worth any points.

Establishing / Maintaining your credit

Creditors want to see your credit history and credit score to see what type of liability you represent when it comes to them giving you a loan (like a mortgage). Not only are you a more attractive borrower if you pay your bills on time (and over time) you can also get the best interest rates possible, which, in turn, reduce the amount of total interest you'll be paying back on your loan.

How to use credit cards responsibly

Here are a few tips on how to use your credit card responsibly:

Pay Your Balance in Full Each Month

In other words, be sure you can afford the payment at the end of the month before you start spending on credit.

Don't Skip Payments

Do you have a large credit card balance to pay? Skipping payments will wreck havoc on your credit and is not good financial stewardship. Instead, come up with a debt repayment plan and pay as much as you can against your balance each month until it's gone. Then, stop using those credit cards until you pay off the balance and can get a firm handle on your budgeting and spending. The goal is to not carry a balance.

Pick a Credit Card with Benefits that Make Sense for Your Lifestyle

If you are an active credit user and you have a firm handle on paying your bill in full each month, pick a card with a benefit like cash back or travel mileage rewards—something that you will actually use. Accumulating points or miles for no reason is counterintuitive.

Using a credit card is not a bad thing. It's safer than cash, convenient, and can be rewarding. But it's not worth debt, if regularly monitoring of your finances and meeting deadlines aren't in your skillset. And don't forget, you can always count on your trusty debit card to keep you from racking up credit card bills. 
What are your best and worst experiences with credit cards and debt?
This article was originally published on Bola's site, Clever Girl Finance.