Some people would want you to believe that a credit card is a necessary evil of today’s modern life. It starts off fitting snuggly in your wallet/purse only to be used to often and eventually, burn a hole in your finances that’s so big that you will resign yourself to winning lotto as the only way to have a comfortable retirement. Yes, credit cards can be massive wealth destructors, but your credit card can be a great friend when used correctly.
Before we investigate the opportunities that come with credit cards, let’s look into the 2 big mistakes we make with credit cards. These two mistakes is what turn credit cards into wealth destructors.
1 – Impulse spending
A credit card in your possession allows you the freedom to become an impulse spender. We have all bought something on the card that we didn’t need but thought we wanted. Fall for this trap a few times too often and kerpow – credit card debt kicks in and its the start of your personal wealth destruction. If you are an impulse spender read – 6 Tips To Avoid Impulse Spending
2 – Only paying the minimum monthly balance
With credit card interest rates being so extraordinary high, your debt just blows out unless you bring it under control. Interest rates of more than 15% are not uncommon. To put this into perspective, every $1,000 of debt is costing you $150. By only paying the minimum amount, you don’t bring your debt under control and you pay a heavy price. The only way to avoid this is to pay the debt off in full each month.
Want some extra motivation to pay your credit card debt off? One of the reasons that you pay this high interest rate on a credit card debt is that you are rewarding those people who don’t incur interest charges! many people pay their debt off each month and don’t pay any interest rate fees.
How to turn your credit card into your best friend
1 – Get the right credit card for you
There are plenty of credit cards to choose from so it makes sense to get the one for you. If you are a frequent flyer, look for the card that will help you with the points you need. There are some that will also provide travel insurance. Used correctly, these cards can save you a small fortune if you are an active traveller.
If you have no interest in rewards structures, your challenge is simple, find the credit card with the lowest fees.
2 – Consider two credit cards
Quite often, the cards with the best benefits may not be accepted everywhere and they may also incur a charge. For example, it is not unusual for a store to charge you a fee of about 2.5% for using some brands of credit cards. Generally speaking, Master Card and Visa are accepted just about everywhere without an additional fee. By always having a popular credit card you will avoid additional fees and you can use your preferred card when fees don’t apply.
3 – Pay the full balance off each and every month
As highlighted earlier, one of the big two mistakes in only paying off the minimum amount. By paying off the full balance each and every month you actually end up in front, as you can get up to 55 days interest free! You can use the funds of your credit card provider for free while your savings earn some interest, now that’s a great deal.
4 – Use your credit card for every purchase
By using your credit card for every purchase, you can easily track your spending. This becomes even easier when you use it combined with a budgeting app. Most of the apps will show you exactly where you are spending your money and will give you some good indicators as to what you can do to control your spending.
5 – Cut up your credit card and get a debit card
If you find that you are unable to pay off your credit card in full each month, you can’t afford a credit card so get rid of it now
As soon as you get rid of that credit card that you can’t control, you will feel the weight lift off your shoulders. To get through modern life, we need a card of some description. The best alternative for those who can’t control their spending is a debit card.
Debit cards look like and do much the same as popular credit cards; the main difference is that they are attached to your bank account. If you have no money, you can’t make a purchase so you never go into debt and be forced to pay off high interest rates.
As you can see, the credit card does not need to be the necessary evil that we think it is. Your credit card can be extraordinarily useful and it will help you to reduce fees and better manage your money. You only need to avoid the traps of impulse buying and only paying the minimum monthly balance.