Using A Credit Card Wisely

In today's marketplace, a credit card can seem a necessity as well as a convenience. Some transactions such as shopping online or renting a car require one. And having a credit card allows you to carry less cash and shop in stores that don't take checks. But unless it's used wisely and within a budget plan, then a credit card can be a shovel for digging yourself into excessive debt - debt that can be hard to pay off and that can cost you hundreds of dollars in interest.
Financial planning experts recommend following these pointers for making a credit card work for you rather than letting it control you.

Carry only one card.
Experts recommend using a credit card for convenience, not as an ideal way to make large purchases. A small consumer loan from your credit union is probably a better way to purchase a computer system or repair your vehicle, for instance. Carrying only one card until you have experience using credit can help you practice sound credit management. Carrying several cards to increase your available credit is an early warning sign of poor financial management.

Shop for a card with maximum customer benefits.
These include low interest rate, no/low annual fee, and grace period after purchase before interest kicks in.

Budget before you spend.
Using a credit card for impulse purchases, particularly bigger ticket items such as tempting electronics or expensive clothes, is a no no. Before you pull out the card know how the purchase fits in to your budget. If you use the card for making a planned larger purchase, also have a plan for paying off the total amount.

Keep your receipts and check them against the monthly statement.
This way you can catch and correct any errors. Some experts recommend signing up for online access to your credit card account so that you can check it more frequently than monthly.

Pay before the due date.
Paying late, even a day late, reflects on your credit rating.

Pay off the balance in full each month.
If you don't roll part of the balance, you don't get into debt and you don't have to pay interest.

Avoid the trap of minimum payments.
If you can't pay the balance in full, make as large a payment as you can and make a plan for paying the balance off over a specific time. Card companies earn their money on people who carry balances. And minimum payments are designed to take years to pay off the balance while racking up lots of interest. On some cards making only the minimum payment can actually increase the balance you owe.

If you pay less than the full amount owed, make a plan for paying the balance off.
Your objective is to pay as little interest as possible for as short a time as possible. This approach maximizes your real spending power.

Read more about choosing and using credit cards wisely.

• Choosing and Using Credit Cards from the Federal Trade Commission (FTC) explains all the terms and types of fees on cards, to help you make the smartest choice.
• Avoiding Credit and Charge Card Fraud – helpful tips from the FTC.
• Credit, ATM, and Debit Cards: What to do if they are stolen from the FTC.
• Secured Credit Card Marketing Scams from the FTC.
• Are You Ready for a Credit Card? an article from Nellie Mae (a leading provider of higher education loans) exploring why credit card companies target students and offering tips on the wise use of cards.
• Understanding Credit Card Costs: Tips on Reducing Finance Charges from non-profit Consumer Action, a consumer education and advocacy group.