Credit cards are seen as a convenience to many consumers. They are a way to avoid carrying cash, dealing with loose change and having a detailed record of where you shopped. But there are a few hidden traps that many consumers don’t think about.
Using a credit card does not mentally feel the same as spending cash, it’s just a swipe not really the same as handing over your hard earned money.
So it can be easy to not keep a mental tally of purchases and wind up with a substantial credit card bill at the end of the month. But there are a few tricks and tips that can help you avoid having these credit card issues.
Keep Credit Cards for Emergency Use Only
If you are not in the habit of using a credit card for everyday expenses, then it will be a very conscious choice to pull it out and swipe it. Keeping the card tucked in the back of your wallet or even at home in a safe place will insure that you are only using the card for emergency expenses. Limiting the use will eliminate the possibility of being trapped by the illusion of the card swipe. And leaving the card in a safe place at home also means that you will have to go get the card from the drawer to use it. You will never be able to slip into that “well just this once” mode to charge an impulse purchase.
Pay In Full
Using a credit card for convenience should be your choice and you should not be penalized for it by paying high interest rates. Paying off your entire balance each month really makes the card your convenience and not just a great earning mechanism for credit card companies. Knowing that you will have to pay the entire bill at the end of the month helps you to be more focused on what you are buying and the total that you are spending each month. And if you somehow forget one month and have to make a few payments to get your balance back to zero, then you will remember the interest that you paid. That wasted dollar amount is clearly printed on your statement as if to say, “look at me, this is what you wasted!” That twenty dollar interest payment could have been a pizza on Friday night.
A Better Emergency Solution
If your main goal for getting a credit card is to have a sense of security in case of emergency, then you need to begin saving to build an emergency fund. This is a great tool that every responsible consumer should have. There are unpredictable things that come up in life and it is just easier to be prepared and have a way to pay the expense without crippling your budget for the month. Using a credit card means that you will be paying a lender interest while you repay the debt, but using your own money from the emergency fund is interest-free. All you need to do is make the payments back to your fund so that it is there the next time something unexpected pops up.
Set a Limit
Having just one or two cards is much easier to keep track of than say five or seven. All you really need is one card to use or maybe two if one is more obscure or is not widely accepted. So keeping it simple and only using a single card allows you to track the balance and never need to worry about falling too deep in debt with an array of lenders.
Stay Away From Store Cards
Store issued or sponsored credit cards are notorious for charging high interest rates. In addition, they entice you into shopping for things that you don’t really need just so that you can get the extra point or sign up bonus or coupons for opening up the credit account. Having a store credit card also makes it easier to cheat on your budget. You don’t really have the money for that new purse or pair of shoes but they are on sale and you got a special coupon to use with your store credit card purchase. So all of that stacks up to talk you into a deal that is just too good to pass up. But in fact, it can be passed up and should be if the item or items are not within your budget and are not absolutely necessary. Finally, the high interest rate on store credit cards means that the lender is less selective about who they will issue a credit card to. In many cases the applicant can have a credit score of as low as 500 and still be approved for the card. With a credit score of near 500, the consumer must already have high debt and they are placing themselves at even greater risk by assuming more debt. Don’t fall into the trap of thinking you can afford more debt just because the store credit card issuer is willing to let you open the account.
Make Smart Choices
Creating a budget and sticking to it are crucial to financial stability. This applies to someone who is just starting out or someone in their prime earning years. There is a limit to what any of us can spend, and that is dictated by how much we earn. You can try to live beyond your means using credit cards but that can only last for a short time. Then the bills roll in and you are stuck with credit card issues and bills that you can’t pay. Being smart with your credit and choosing to only spend what you can really afford to spend is a wise choice and will help you to never fall into the trap of credit card debt. If you want to use a credit card as a convenience, then do so but do it wisely so that it is a useful tool and not a pitfall.