In 2008 I racked up over $5,000 in credit card debt after graduating college. In 2011 I paid off that debt!
After I shed the credit card debt I vowed to learn how to use credit cards responsibly. I wanted to still get the great benefits credit cards offer, but not get in over my head again. I wanted the perks without the debt.
After reading books and listening to personal finance gurus for a while I picked up a lot of tips to help me use my credit cards in a responsible way. Today I want to share those tips with you all so that you may also get the great benefits of credit card use without the stress and debt. It is possible!
How To Use Credit Cards Responsibly
Know that it’s not “just a piece of plastic”. If you want to use a credit card responsibly and not get yourself into trouble then you need to realize that the credit card has a great financial emotion behind it. If you abuse it, it can ruin your life. If you overspend, it can come back to bite you. You have to do whatever it takes to mentally realize your credit card is your money, your bank account, your savings.
Learn how to track your spending. Using a credit card means you won’t be running out of cash at the register, but it doesn’t give you the freedom to spend freely. To use credit cards responsibly you still need to track your spending. You can do this in a variety of ways either online through a service like Mint.com or with pencil and paper. Either way, to use a credit card well you need to track your spending and know how much you’ve charged onto your card already.
Pay off your credit cards in full each month. If you build up a balance and start paying interest you can negate all the rewards you get from using credit cards. You should always know what you balance is and have the money to pay it off at the end of the month. If it helps you can also adopt the weekly approach and pay off your credit card balance at the end of every week.
Avoid increased convenience spending. Many personal finance gurus like Dave Ramsey speak out about credit cards because the convenience factor leads to overspending. This can easily happen so you need to stay vigilant. Acknowledge that there are factors that lead to overspending and then use techniques to keep yourself from spending too much. Some ways to do this are updating a budget, keeping a list of your goals in your wallet, having a wait a day buy rule, or other techniques.
Monitor multiple accounts carefully. Once you fall into the wonderful world of credit card rewards you’ll find you want multiple credit cards to maximize your rewards at various locations. This can work well but to do it responsibly you need to watch you accounts like a hawk. They can easily get away from you if you are not careful. Create a system that guarantees you will never miss a payment.
Have a small limit on your credit card(s). One way to be responsible with your credit card use is to keep a small limit on your card rather than increasing your credit limit every chance you get. If you keep the limit small to an amount you know you can pay then you’ll never worry about making that payment at the end of the month. You’ll still get credit card use benefits but have limits that keep you more in control.
Get a good credit card. By this I mean get a credit card that is worth using. You want to make sure your credit card gives you all the benefits you care about most so that using the credit card is worth it. You might care about airline miles or cash back rewards or another benefit. Whatever it is, make sure you select a card that fulfills your desires. Here are my picks for the best credit cards.
If you do all these things and are smart about your credit card usage it doesn’t have to be a trap.
I’ve paid off my credit card every month since getting out of credit card debt. In that time I’ve earned hundreds of dollars worth of rewards in cash back and hotel stays. It’s a wonderful thing!
Are you a credit card user? Do you use credit cards responsibly?
{ 5 comments… read them below or add one }
I definitely use credit cards a lot. I love the rewards. I have never carried a balance, and lets hope that never happens.
These are all great tips!
For people trying to build credit (for example if they know they will be taking on a mortgage in a couple of years), I disagree with keeping available balances low. Your credit score is affected by how much available credit you have, so you don’t want to restrict this. Of course, if you’re still at the point where a high credit limit will tempt you, fixing that needs to come first! But if you’ve already started to be responsible, you want to maximize available credit.
With that one I included it as a tip for people who want to use credit responsibly but don’t feel completely sure of their ability to do so. Keeping their credit limit low will help them in the beginning. Over time as they gain confidence in their ability to use credit cards responsibly they can increase if needed.
Yes and yes! Although everything goes on the credit cards, we only get the things we need. It is based on the budget to some extent. I always pay the entire balance every month.
Good article. I think the key is to only borrow what you can afford to pay back in full the next month.