BUSINESS

5 Credit Card Best Practices to Implement in Your Money Habits

A credit card is a financial tool that allows you to buy items and pay for them later. It has become increasingly popular in recent years, but it can be abused easily. With the right practices, your credit card can be an effective way to spend money and save time. In this article, we will discuss five best practices for using your credit cards responsibly so that they work for you, not against you!

1. Don’t spend more than you can afford.

Your credit card can help you purchase items that will benefit your life in the future if used correctly. However, many people allow their spending to get out of hand and end up paying much more than they would have paid with cash or by debit card. Even though it is not a physical bill that shows up in your mailbox every month, having a monthly credit card bill is just as painful. By spending more than you can afford, you are digging yourself into a deeper financial hole each month.

2. Pay in full and on time every month.

The best practice for spending with your credit card is to pay the balance off in full at the end of each billing cycle. If you only make the minimum payment, it will take years for you to clear up all of your debt. Each monthly bill may be small, but they add up quickly. By paying off your entire balance every month, you are essentially earning free money because of all the interest that would have been paid on loan.

3. Save your receipts.

If you are using a credit card to invest, you must save all of the relevant documentation. If you ever have to return or exchange anything for any reason, having proof will help speed things up drastically. When filing away documents related to financial transactions, it’s best practice to store them in a folder with labeled pockets.

4. Your credit utilization ratio should never go beyond 30%.

When you look at your credit report, one of the most important factors is your utilization ratio. This refers to how much money in total that you owe compared to how much available credit you have. For example, if your limit for a card is $1000 and when the billing cycle closes, it shows you owe $700 on the account, then your utilization is 70%. It is best practice to keep this number below 30% at all times. If you can’t pay off your entire balance, try only putting purchases on the credit card that you know you will afford when they come in each month.

5. Have a budget and stick to it.

Another best practice for using credit cards is having a budget and following through with what you set out in the beginning. Without having some sort of structure, it’s easy to overspend when using your card. It may seem like every month has different expenses, but if you consider how much money goes into certain categories (i.e., groceries), then most likely, there will be similar items that pop up each time and can become fixed costs that are added into your monthly spending plan each month repayment.

There are many best practices for credit cards, but by implementing these five simple tips, you will find yourself feeling more financially secure. If you use your cards responsibly, they can be a useful tool for building up good credit and making the most of your money.