Ways to Use Your Credit Cards Wisely

By Britt Erica Tunick

Credit cards have become such an integral part of daily life that they are now accepted virtually everywhere. But before you pull out a credit card to pay for your next coffee at Starbucks, take a few minutes to make sure that you are using your credit cards in a way that will generate the greatest benefit for you, and will not negatively impact your credit rating.

It should go without saying that the biggest risk of using credit cards is the ease with which you could potentially run up significant debt and wind up making hefty interest payments. To avoid this risk, make sure you are aware of how much your monthly debt payments total –everything from mortgage payments to your electric bill. Then determine how much of your remaining income you will need to set aside for savings, and how much you can safely charge on credit cards so as to still pay your statement in full at the end of each month. Failing to pay off credit cards in full not only exposes you to the threat of having to make lofty interest payments on your unpaid card balances but could negatively impact your long-term savings goals or even your credit rating if lenders see that you are carrying high, long-term card balances.

If you are already carrying credit card balances and can’t pay them all at once, take a close look at your card statements – which now must document how long it will take you to pay down those balances if you make only the minimum payments, as well as how much you will ultimately pay if you do so. Needless to say, if you aren’t able to pay your balances in full, stop making new charges until you can. If the interest rates you will have to pay on your credit card debt are significantly higher than any other types of debt you have – and the odds are good that they are — concentrate on paying down this debt before making any other unnecessary investments or additional debt payments, such as extra principal payments on a mortgage.

Having multiple credit cards is fairly common, as the benefits offered by different cards can vary significantly – not to mention that certain stores only accept certain types of cards. Because of this, it makes sense to carry more than one card, but make sure you are carrying the right ones. Of course, it isn’t just the credit card benefits that vary, but also the fees that are charged.

While it may be appealing to choose a card that doesn’t charge an annual fee over others, make sure to compare everything about different cards. If you are likely to carry any kind of long-term balance on your cards, paying a $95 annual fee to one card provider may make more sense if the interest rates they charge are significantly lower than another card provider’s. Read the fine print, as many cards may offer an attractive initial interest rate, and then boost the rate down the road. Similarly, take time to really look at the ultimate benefit you’ll get from the rewards of different cards. While airline miles may seem more attractive than cash back, it completely depends on how many miles you will need for a flight and how much you need to spend to earn those miles. In the end, if you have to spend twice as much money to earn miles, cash back may actually be your best bet.

Finally, given how easily credit cards can impact your credit rating, make sure to regularly check your credit reports to ensure that there aren’t any errors. Also, while you may find cards that offer more attractive rates or benefits than some of your older cards, keep in mind that it is important to maintain your oldest credit card because canceling it can ultimately lower your credit score.