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by Lyle Daly | Updated July 21, 2021 - First published on Dec. 12, 2018
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Your credit card doesn't have to put you on the fast track to debt. Learn about one simple method that allows you to reap all the rewards and other credit card benefits without being at risk of overspending.Image source: Getty Images
As far as payment methods are concerned, credit cards are the closest thing out there to a double-edged sword.
Used correctly, the best credit cards can be worth thousands of dollars in perks and provide you with a secure form of payment. But they also present the potential for costly debt, which is why some consumers reject credit cards entirely.
It'd be a shame to leave valuable benefits on the table just because of how credit card use can go wrong. Fortunately, there's a better, safer way to use your credit card.
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The dangers of credit card debt are well-documented at this point. If you spend too much using your credit card, you could end up with a large balance that takes you months or years to pay off. During that time, you'll pay steep interest charges every month, and if the balance results in high credit utilization, then your credit score will drop like a rock.
While the obvious solution is not spending too much, that's easier said than done. Since you don't need to pay credit card charges right away, it's tempting to pay for today's purchases with tomorrow's money. Then you end up paying a small amount of interest one month and a bit more the next. It's often these little steps that gradually bring you deeper into debt.
Despite the possibility of debt, credit cards also have significant advantages over other payment methods:
The smartest way to use your credit card is to treat it like it's your debit card. You only use it for a purchase if you'd be able to pay the bill with the money currently in your checking account.
That's a good philosophy to have, but how can you apply it in the real world? There are three options to consider, depending on how strict you want to be with yourself:
As you can see, each option makes it a bit more challenging to overspend. The first will work fine if you're confident you can stick to it and you won't make exceptions whenever you want to buy something expensive. If overspending has been a problem for you, then the latter two options are worth looking at.
Regardless of which one you choose, if you use your credit card this way, you'll get all the good features of your credit card without paying your card issuer a cent of interest.
The method described above is ideal when you have no credit card debt and you just want to earn rewards without getting stuck in debt. Other situations could call for different approaches, but this is undoubtedly the simplest and best way to approach credit cards for the typical consumer.
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