We live in a world where many people carry a monthly balance on their credit card. When combined with other loan payments, such as a car and mortgage, debt can quickly snowball and cause serious financial strain. In fact, the average American household has $7,200 in credit card debt. As inflation has set in the last few years, it’s become harder for people to stay on top of their debt payments.
But, if used properly, a credit card can be an extremely valuable financial tool. From paying down debt to building credit to a host of rewards programs, credit cards can be used to your advantage. Here are 5 ways to make your credit card work for you versus against you.
1. Building Credit
Without a solid credit history and credit score, it’s hard to pay for larger purchases. Can you imagine having to pay for a car in cash, or what about a new home? Unless money starts to grow on trees and we all become millionaires, it’s important to build credit and to keep it in good standing.
One of the best ways to build credit is with a credit card. For someone who has little to no credit or bad credit, a secured credit card is a great option. These cards require an upfront refundable deposit but are a great way to start building or rebuilding your credit. Secured cards often have high approval ratings and offer just enough credit to show that you can dependably charge and pay your balance each month.
Traditional credit cards can also be used to build credit, though consumers often face higher interest rates and more stringent qualification requirements.
2. Pay off Other Debt
As explained earlier, we live in a world of debt. The problem becomes when we face high interest rates. If you have a credit card or loan with a double digit interest rate, you know just how frustrating it is to make monthly payments, only to see your balance owed decrease at a snail’s pace. The good news is that you can find a credit card that offers a very low or 0% APR for a set time.
If you have good credit, you can all but expect to get approved for some of the best APR credit card offers. Getting approved for a card with a low or 0% APR along with a low or no balance transfer fee is crucial in paying off high-interest debt. With this type of credit card the entirety of your monthly payment goes towards your balance owed.
3. Debt Consolidation
It’s not uncommon to have multiple credit cards, and while it’s nice to have options, paying multiple credit cards with different due dates, monthly payments, balances, and interest rates can be a serious headache. If you have a good credit score and a sound credit history, you may want to open a new credit card to consolidate your debt. It’s much easier to pay a single payment each month.
With a credit card for debt consolidation, you want to look for a card that offers a low balance transfer fee as well as a low interest rate. Ideally you’ll find a card that has an interest rate that’s lower than the rate on any of your existing cards. This way you can save money and have more of your money goes towards the principal balance.
Using the right credit card for debt consolidation makes it much easier to dig yourself out of debt and into financial stability.
4. Rewards Programs
Can you think of any other part of life where you can get rewarded for making a purchase? While you always feel good after buying something you’ve wanted to buy, wouldn’t it be nice to get rewarded with something extra? With the right credit card you can have your cake and eat it too.
Many credit card companies offer a wide range of rewards programs. Some offer cash back while others offer discounts and perks for travelers, business owners, students, and others. With a quality rewards program you could fly around the world for free or save money on business equipment.
5. Signup Bonuses
Many credit cards attract new customers because of signup bonuses. Different credit card issuers offer a variety of bonuses including complimentary flights, a large amount of bonus points, and cash back. Finding a card with a signup bonus is crucial, especially if you’re looking for a new card to add to the mix.
When considering a card with a signup bonus, be sure to read the terms and conditions to ensure that you can meet the requirements. Most cards require you to spend a certain amount of money in a set time frame to quality for the signup bonus.
Even though some people use their credit cards improperly, you can only blame your own spending behavior not the card. With these 5 options above, it’s clear that credit cards can be quite advantageous when they’re used properly. Keep these tips in mind to get the most out of your credit card.