- Credit cards tend to have very high interest rates.
- You don't have to pay interest just because you use a credit card.
- Tracking what you spend on your card can help ensure you don't pay interest to creditors.
Follow these tips to make sure you never waste your money enriching credit card companies.
Credit cards generally tend to charge interest at very high rates. The expense associated with paying credit card interest is one big reason why some finance experts -- such as Dave Ramsey -- recommend steering clear of using cards.
The reality, though, is that if you don't get stuck paying interest on your credit cards, they can actually help improve your life in many ways, including allowing you to build credit, earn rewards, and take advantage of cardholder perks. The key is making sure you can pay off your balance before interest kicks in.
So, how can you do that? Here are four techniques to help ensure you don't ever put your own finances at risk by paying interest to creditors.
1. Live on a budget
If you want to avoid owing interest on credit cards, you need to be sure you are only charging an amount you can pay back when your statement comes. Living on a budget helps you do that.
When you make a budget, you can make sure your spending does not exceed your income. Since you will only charge pre-planned purchases on your credit cards and will keep your spending below the paychecks you have coming in, you should always be able to pay off your balance in full before any interest comes due.
2. Keep track of your spending
Whether you make a budget, keeping track of your spending can also help you ensure you avoid interest charges on credit cards.
Tracking the spending on your cards can help you make certain you're sticking to your budget and not splurging so much that you end up with a credit card balance you can't pay off. The fact you know you're tracking spending also makes you less likely to bust your budget, since you'd be more conscious of the fact you're making a purchase that exceeds the spending limits you set for yourself.
Even if you don't have a budget, tracking spending can help you avoid credit card interest. If you keep tabs on how much you're putting on your cards and you make sure you always have enough in your bank account to repay your balance, you'll easily be able to send in your payment before interest begins accruing.
3. Set up auto-payments
Auto-paying your credit card is a foolproof way to avoid interest charges, as you can set up your card to have automatic payments for the entire balance taken directly from your bank account. This way, you won't forget to make a payment and inadvertently get hit with interest charges, and you won't be tempted to pay less than the full balance due.
Now, the trick to this approach is to make sure you never overdraft your account with an auto-payment. But if you're tracking your spending and/or living within your budget, then this shouldn't be an issue.
4. Look into 0% APR options
Finally, if you must make a purchase that you can't pay off in full, look into a card with a 0% introductory interest rate. This allows you time to pay off your purchases before interest kicks in.
By following these four tips, you can use credit cards to your advantage while not sending creditors any extra money for interest costs -- so credit card use will benefit you.
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