At first glance, credit cards are one of the most convenient things in the world. You can get what you want, when you want it, without having to carry large amounts of cash or even having the entire amount at the time of purchase.
While some borrowers are able to comfortably budget and manage their credit card spending, that’s not the reality for most American households. According to Nerdwallet, “The average U.S. household with credit card debt has an estimated $6,929 in revolving balances, or balances carried from one month to the next.” Many people are using their credit cards for large purchases like vacations, vehicles, and even weddings.
That being said, don’t despair! By using your credit card wisely, you can enjoy all the convenient benefits of a credit card without becoming a statistic of credit card debt.
Only have one credit card
You can barely walk into a store without someone offering you a deal or a percentage off if you sign up for a shiny new credit card. It almost seems like a no-brainer. You’ll accept their offer, take advantage of the deal and then get rid of the card. But the truth is it hardly ever works out that way. You become accustomed to having access to more money. You like having the ability to get more things. Except at the end of the month, when you don’t just have one credit card bill to pay, you have two or three or more and you certainly can’t afford to pay them all off. Which brings us to our next point.
Pay it off in full every month
By paying off your credit card in full every month you avoid interest rates, which average about 16.71% plus late fees. Some people do this by saving and paying the entire balance at the end of the month. Others pay every two weeks, while still others weekly to make the hit less painful. It may take some work to get your card balance down to zero, but once you’re there, you’re in the clear and can stop losing money on interest!
Know your statement closing date
The way your credit card works is, balance comes due 21 days after your statement is mailed to you (the end of your billing cycle). That means if you make a purchase the day before your cycle’s closing date you’ll have about 21 days before it comes due. However, if you make the purchase at the beginning of your billing cycle, you will have that month plus the 21 days before the payment is due. Knowing your billing cycle can help you figure out exactly when to make larger purchases to give yourself ample time to pay.
Save up for large purchases
As much as you might want to give in to the temptation to go ahead and buy that large screen TV – we urge you to wait. The wise thing to do is hold off until you actually have enough money in the bank to pay for it before swiping your card. It may be less fun in the short term, but the long term savings in interest charges are way more enjoyable.