Credit cards can seem like simple things -- pieces of plastic you carry in your wallet and use to pay for whatever you'd like. They're a bit more complex than that, though, and they have the power to enrich or nearly destroy you financially. Learn the credit card rules you should know by heart and you can avoid a lot of trouble.
- Charge only what you can afford
This rule is simple. With a credit card, you can 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.
- Aim to pay each bill in full
Making only partial payments will leave you with growing debt. That can be very hazardous to your wealth.
- Pay each credit card bill on time
You can pay your bills late, but there are lots of reasons not to. Make it a personal rule to always pay your bill on time. Being late can hurt your credit score and can result in interest charges, too.
- Don't accumulate debt
Credit card debt can accumulate easily and quickly, especially because of interest rates that tend to be high. A 25% annual rate isn't unusual, and that can have you paying $2,500 per year in interest alone on a $10,000 balance. Snowballing debt is a financial disaster.
- Pay off credit card debt as soon as you can
If you already have credit card debt, pay it off as soon as possible, even if you have to take a second job for a while or significantly cut back on your spending. Most of us need to be saving for retirement and owing money on cards can seriously get in the way of that.
- Don't just pay the minimum
It's not enough to just pay the minimum due on your credit card bill. That will keep you in debt for a very long time, and will rack up major interest revenue for the credit card company.
- Negotiate for lower interest rates
Know that you can often call up your credit card lender and negotiate a lower interest rate. This is especially likely to work if you've been a longtime, loyal, customer.
- You can move your debt if you need to
If you're being charged more than you need to be on your credit card debt, you may be able to transfer that debt to another card -- one with a lower rate and perhaps even an extra-low initial "teaser" rate.
- Don't get too excited by balance transfers
Don't think you've solved a debt problem just by transferring a balance, though. You'll still have to pay off your debt, and the sooner the better. Remember that teaser rates will give way to higher rates after a while.
- Know that you can pay off your debt -- even a lot of it
Don't be discouraged if you are carrying a lot of debt. Know that many people have paid off tens of thousands of dollars in debt, and gone on to live financially healthier lives.
- Choose cards wisely: seek low interest rates
When you're in the market for a new credit card, spend a little time and find the best one for your needs. If you'll occasionally carry a balance, seek the lowest interest rates you can find.
- Choose cards wisely: seek cash back
If you don't expect to be carrying a balance on your credit card, know that you can get cash back on your spending. Some cards will pay you 1% on everything you charge, and sometimes much more than that. Getting 1% back on $10,000 in annual charges amounts to $100. If you get 3% back on gas or groceries with a card and spend $3,000 on that category, you're looking at $90 in cash.
- Choose cards wisely: seek rewards
Alternatively, you might opt for a card that offers specific kinds of rewards you can use, such as miles for travel, hotel benefits, discounts at stores you patronize a lot, and so on.
- Don't go crazy earning rewards
While rewards cards can be terrific, don't fall into the trap of spending more freely just because you know you'll be getting some cash back or racking up more miles on your card. That's very often not worth it.
- Don't have too many cards
Having too many cards can count against you on your credit report and your credit score. It can also make it temptingly easy to spend more than you should.
- Check your statements each month
Don't assume that each month's credit card bill is correct. Look each one over carefully, as there may be an erroneous charge or two on it. You might also find that you're being billed for things you weren't aware of, such as automatic magazine renewals.
- Avoid cash advances
Steer clear of cash advances, too, or at least be sure to read the fine print related to them before using them. They typically feature fees, which can be as much as 5% of the sum withdrawn, and they start charging interest immediately, with no grace period. For a $1,000 cash advance, you might pay $50 in fees and more than $10 in interest!
- Don't use credit cards if you will abuse them
Credit cards are very convenient, but they're not worth it if you don't have the discipline to only charge what you can afford, to pay your bills off in full and on time, and so on. Many people would be well served by sticking with cash. Studies have shown that we tend to spend less when paying with cash, too.
- Use credit cards to build a good credit record and score
Finally, know that being responsible about your credit can help you build a great credit report and credit score, and that, in turn, can get you very favorable interest rates when buying a home, getting a new car loan, and so on.
Credit cards can make your life better -- or worse -- depending on how you use them.