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Don’t use your credit card without reading this.
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Credit cards can actually be a great financial tool, despite the fact that some financial experts recommend steering clear of them due to their high interest rates.
But if you want credit cards to help your finances instead of hurt your financial stability in the long run, there are four rules you absolutely must follow.
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1. Avoid paying interest on a credit card
Paying interest on a credit card is inevitably going to make your financial life harder. Credit cards have high interest rates, which is why so many experts suggest avoiding them. You could end up paying upwards of 17%, which would mean most of your payment goes to interest and you make all your purchases cost a lot more.
But, you can entirely avoid paying interest on a card. Just pay it off before interest is charged. Typically, you have 30 days to do that, so if you don’t charge more on your card than you can repay when your statement comes, you’ll be in the clear. If you need more time to pay off purchases, opt for a card offering a 0% introductory APR on things you buy.
If you don’t pay interest, you can benefit from earning credit card rewards without making all your purchases cost more.
2. Always pay your bill on time
Paying late has major consequences. You could damage your credit score along with triggering late fees and also possibly triggering a very high penalty APR. If you’re going to use a credit card, you absolutely must be committed to paying the bill on time every time.
You can set up an automatic payment (for at least the minimum but ideally the entire balance) to avoid getting into trouble with a delayed payment.
3. Be smart about fees
Credit cards can charge a whole bunch of fees, such as an annual fee and a foreign transaction fee.
Some of these fees you will always want to avoid. If you travel abroad or make purchases outside of the U.S., be sure you get a card with no foreign transaction fees.
As far as an annual fee, you may actually sometimes want a card that charges one if the perks are worth more than the fee you’ll pay. Just add up the value of the cardholder benefits that you’ll actually use to decide if the annual fee is worth paying.
4. Steer clear of cash advances
Finally, you absolutely do not want to take a cash advance on your credit card. There is usually a fee for doing so and you will be charged a higher rate of interest. This should be avoided, as cash advances are an unnecessarily expensive way to borrow money.
If you follow these four rules, you can make credit cards work well for you and avoid falling victim to some of the pitfalls that can lead you into trouble with your cards. Just be sure you’re committed to following all of them before you get a card to put in your wallet.
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