"Credit cards are like snakes: Handle 'em long enough, and one will bite you."
-- Sen. Elizabeth Warren
It's hard to beat the convenience of a credit card: A little piece of plastic will let you buy just about anything you'd like, with little regard for how much money you have on you or in the bank. If you're not responsible or savvy in your use of that plastic, though, you may indeed get bitten -- or worse.
Here are three of the best credit card tips. Let them sink in, and your financial life may unfold more pleasantly.
Tip No. 1: Choose and use your credit card(s) thoughtfully
There are myriad cards out there, and they're far from all alike. Some pay you cash back (in varying degrees of generosity), some have low interest rates, some offer miles, and so on. Choose the cards that best fit your needs and spending habits. For example, if you charge a lot on credit cards at many different places, you might opt for a general-use cash-back card. If you spend a lot at Amazon.com, you might want a card that gives you a generous percent of cash back at Amazon. Anyone struggling with credit card debt could be well served by a card with low interest rates.
Here are just a few of many great cards out there:
- Barclaycard Ring Mastercard: This card charges no balance-transfer fee, and its initial annual percentage rate (APR) is 0% for the first 15 months for transfers made within 45 days of opening the account. After the introductory period, the APR will be variable. Its rates are quite competitive -- and it doesn't hike your interest rate if you're late paying a bill. The Barclaycard Ring Mastercard also offers online access to your FICO credit score, which can be handy if you're working hard to pay off debts and beef up your score -- perhaps in preparation for getting a mortgage or taking on other debt. It doesn't charge foreign transaction fees, either, which is nice if you travel outside the U.S. There's no annual fee. (Read our full review of Barclaycard Ring Mastercard to learn more.)
- Chase Freedom Unlimited: The Chase Freedom Unlimited card offers 1.5% cash back on all purchases, with no limit. You can collect a $150 bonus once you spend $500 in your first three months. There's no annual fee, either, and it won't jack up your interest rate if you're late with a payment, either. (Read our full review of Chase Freedom Unlimited to learn more.)
- Amazon.com Prime Rewards Visa: This card is a great option for Amazon shoppers and is available to Prime members. It charges no annual fee, and no foreign transaction fees, either. You'll receive a $70 Amazon.com gift card upon signing up, and will then earn a whopping 5% cash back on all Amazon purchases, along with 2% back on spending at restaurants, gas stations, and drugstores, and 1% back on everything else.
Tip No. 2: Favor cards with no "penalty APR"
If you look closely at the terms of credit cards, you'll see that some of them are ready to penalize you -- very harshly -- if you're late paying a bill. They impose a "penalty APR," hiking your interest rate into nosebleed altitude. Penalty APRs tend to be 20% or more, and often approach 30%. If, as an example, you're carrying $8,000 in debt on a card with a 15% interest rate, you're looking at paying around $1,200 in interest annually. If that interest rate suddenly becomes 25%, you're looking at $2,000 in annual interest payments -- a full $800 more.
Rules change over time, and there's movement afoot in Washington to weaken or eliminate the Consumer Financial Protection Bureau (CFPB), which might weaken or eliminate consumer-friendly credit card regulations. Under the current rules, though, if you're late with a payment and you've had your account for a year or more, you can get slapped with a penalty APR -- but it will only apply to charges you make going forward, not to your previous balance. If you're 60 days late, though, it can apply to your entire balance.
To prevent the costs and headaches of the penalty APR, choose and use cards that don't impose it. If a card you use does hit you with a penalty APR, it would be wise to pay off your balance as soon as possible and to stop accumulating any debt on it. You might transfer your balance elsewhere, too.
Tip No. 3: Keep your credit score high
Finally, understand how important a good credit score is. It can get you lower mortgage interest rates, saving you tens of thousands of dollars, and it can also get you approved for top-of-the-line credit cards -- ones with great terms, great benefits, and more.
To keep your credit score high, pay off your bills in full and on time, and don't max out your credit limits on your cards. Charge only what you can afford, so that you don't accumulate costly debt. Credit cards make it extremely easy to walk out of a store with an extravagant item that you really can't afford. Don't do that. Live within or below your means.
Don't let your credit cards bite you. Use them responsibly and strategically and they can serve your interests much more than the interests of credit card issuers.