Credit Cards - Using Them to Your Advantage
Credit cards are everywhere and they are quickly becoming THE way to pay for things. MasterCard, Visa, Discover, American Express and more are the preferred way to pay for many people. Credit cards can be a wonderful tool for personal finance - if used correctly. Unfortunately many people use them to purchase items they can't afford or to pay their living expenses during tough times. While it is nice to have a credit card to fall back on, repaying that debt is going to be very hard. Let's look at the right ways to use a credit card and how credit cards can benefit you if you use them this way.
First, you should never carry a balance. If you are going to use a credit card, you need to pay off the balance every month. This is good for your credit, this saves you money rather than costing you more money, and many times the credit card company offers you a bonus for charging things. This is one way credit cards can be advantageous. For instance we have an LL Bean credit card. We got this when we realized how many times we bought things from them and paid shipping charges. Having this type of Visa card allows us to get free shipping and monogramming (something we wanted) AND we earn coupon dollars every time we use our card. Find the right card for you and you can benefit this way as well.
Pay your credit card bill on time. The minute you incur a finance charge, all benefits are lost. Not to mention that paying your credit card bill late will damage your credit score rather than help it.
You can use your credit card to buy yourself some time. For instance when I needed dental work done I didn't have time to save the money ahead of time. By using the credit card I was able to give myself a month to come up with the money. I knew I could pull it from savings if I needed to, but I wanted to try to come up with it out of our regular budget. Buying myself some time helped me do that. Another way it can buy some time is if you have your emergency fund in an online bank account, like we do. It takes a few days for the money to transfer. We use the credit card for emergencies, then transfer the money from our online bank and finally pay the credit card in full. Another plus in this is that our money earns interest longer in the bank this way.
One of the biggest reasons why we use our credit card is for security when shopping online. Online shopping makes me nervous because sometimes the wrong people can get your information and charge random things. If this were happening with my bank account it would wreak havoc on our checking account, our budget and our lives. If this happens on our credit card it is a minor inconvenience.
As long as you don't overspend and pay your bill in full and on time credit cards can really benefit you. How do you make your credit card work for you?