Credit cards are a convenient way to pay for things, but they can also be dangerous. If you want to avoid the dangers of credit cards and use them responsibly, follow these tips.
Budgeting
The first thing you need to know about credit cards is that they’re not bad, so long as they’re used responsibly. The problem with credit cards is that they can be dangerous if you don’t know how to use them. To avoid the dangers of credit cards, you must understand how their usage can benefit your financial situation and why this makes them an asset rather than a liability.
Stick to a cash allowance
It’s also a good idea to set aside a certain amount of cash each month and use it only for bills and other expenses. This means you’ll need to plan ahead, which will help keep your spending in check.
The main reason people spend more than they can afford on their credit cards is that they don’t have the money on hand, so they’re already tempted by the idea of making purchases with plastic. Suppose you have a cash allowance set aside for bills and necessities. In that case, there won’t be any temptation for this kind of negative balance situation because there won’t be any “negative” balance.
Keep up with bank statements
When it comes to credit cards, the most important thing is to keep a record of your spending. This can be done in many ways. You can use a paper notebook or an app on your phone, but whatever method you choose, be sure that you have access to all of the card statements each month (and preferably before they arrive in the mail). It will also help you avoid the issue of a credit card negative balance. As per the experts at SoFi, “A negative credit card balance is when the credit card issuer owes the cardholder money instead of the cardholder owing money to the credit company.”
Prioritize bills
You should prioritize bills in the following order:
- Pay your credit card bill first. If there’s any money left over, pay other bills in order of highest interest rate first and lowest interest rate last.
- If your balance is higher than the amount available on your credit card, pay as much as possible and make it a priority to pay that bill before any others. Credit cards have very high-interest rates (15%-30%), which means that if you don’t pay them off in full each month, they can end up costing you a lot more than what they were worth when purchased.
Beware of store cards
Many people think that store cards are just like credit cards. But they’re not.
Store cards are issued by the same banks that issue credit cards, often with similar features and benefits. However, store cardholders aren’t allowed to carry a balance from month to month like you can with a traditional credit card that’s because you have to pay off your balance in full at the end of each billing cycle.
While credit cards can be useful tools when used properly, they can also cause serious problems if left unchecked. It’s important to keep track of your spending and stay on top of bills so that you don’t end up in debt. Fortunately, there are ways to avoid this situation by keeping track of your finances and making smart decisions about what credit card is right for you.
