Lets be honest, today, a credit card has become a word that is immediately associated with debt. But, the truth of the matter is that the credit card is not the problem, it is how you use it that is the problem. When used responsibly, a credit card can help you to build a good credit relationship with your bank and prove to be even more useful than a debit card.
A credit card is a card given by a bank to enable you to purchase items, in the form of a short-term loan, which you pay for after a particular period of time. Credit cards come in two forms, they can either be:
- Secured credit cards which are backed by a cash deposit that is usually equal to the cards limit. The cash deposit on the credit card works as a guarantee. You need to note that you still have to make the required payments as per the billing cycle. Usually, the bank is able to refund the cash deposit, as per the agreed upon terms and conditions.
- Unsecured credit cards are not backed by any cash deposits or collateral. A bank would calculate an appropriate credit limit based on your income and credit history.
Can Credit Cards Really Be Helpful?
Credit cards can help you do many things provided you are responsible with how you use them. The biggest benefit of a credit card is that it enables you to build a great credit score with your bank. Building a great credit score with your bank will come in hand when you desire to get a loan, mortgage or another form of long-term credit.
The way you use your credit card is a habit. You develop a habit by your day to day practices. Having a credit card can make you develop good spending habits or bad spending habits. Try not to change your spending habits just because you have a credit card.
When you do decide to get a credit card make sure you research on one that suits your needs and lifestyle appropriately. So make sure that you do not get comfortable and forget to make your credit card payments in good time.
Furthermore, take note of all the fees and penalties associated with the credit card you want to get and its usage. Study the credit card agreement carefully and ask about every charge that will be associated with every transaction you are allowed to make with the credit card.
Tips on Using Credit Cards Effectively
So we understand that credit cards can be tempting, but they are also a powerful tool that can make you manage your money easier. So, in order to avoid the common problems, here are some helpful tips to help you develop good financial disciplines.
- Pay your bill in full every month: Pay your bill on time and in full every month. Not only does this habit help you to establish a good credit relationship with your bank it also ensures that you do not pack up any debt.
- Pay your bill on the due date: Make sure to pay the bill on or before the date it is due so as to avoid penalties brought about by late payments. Paying your credit card bill on time is a great way to keep the interest rates the bank charges you low and improve your credit rating with the bank.
- Use the card for needs, not wants: A credit card should be used carefully. Frivolous purchases can lead to debt. Try and ensure that you only use your credit card just for your usual budgeted expenses and in the case of an emergency.
- Use your credit card to manage your budget: A credit card can help you manage your budget. This is because you can discipline yourself to only use your credit card for budgeted expenses only.
- Set a spending limit: It would be advisable to ask the bank to set a spending limit on your card to help you stay your budget. A spending limit will help you not go beyond a targeted amount in case you get tempted. It will encourage you to be disciplined.
- Manage your paper trail online: A credit card can help you keep track of your expenses because of the paper trail. When you use credit for all of your purchases, you do not have to keep receipts for things like grocery and fuel purchases. Instead, you can just log in to your online account to see where you spent money, how much you spent, and how much you have left.
Make sure you take advantage of the benefits awarded when you spend money on your credit card and utilize them accordingly. After all, what are they there for. Make sure to choose a card that has extra benefits such as free travel insurance, extended warranties and so on.
With all that in mind, I hope we have convinced you that credit cards are helpful. A credit card can be a convenient way to pay for almost anything you desire provided you plan that expense. Do not forget that a credit card is a short-term loan. Therefore, spending money on your credit card means you are borrowing money from the bank and this needs to be paid back as soon as possible.
Remember, financial discipline is telling your money where to go, instead of wondering where it went. Please comment below with your thoughts how helpful a credit card can be. Good luck!
Learn more:
- 11 Things You Should Know Before You Get Your First Credit Card
- 10 Reasons To Avoid Credit Cards
- Credit Cards: Types of Credit Cards
