The Right Way to Use Credit Cards

Credit cards are great, if you use them correctly. I use my credit cards for almost everything. But, I pay them off every month. And, since my main card is a Costco Visa card, the credit card company pays me for using it. You just can’t beat that. However, if you are not paying your credit cards off every month, you’re wasting money, probably a lot of money.

Here are the basic rules for using credit cards.

  • Don’t pay an Annual Fee
  • Pay your bill on time.
  • Pay your bill in full each month.
  • Don’t charge anything that you won’t be able to pay off at the end of the month.

Don’t pay an Annual Fee

There are too many cards around lately that do not charge you an annual fee. You should never have to pay to use a credit card. Before you apply, make sure that you read the fine print. Some cards applications only say that you don’t pay an annual fee the first year. Make sure that it says there will never be an annual fee.

Pay your credit card bill on time.

If you don’t pay your bill on time, the credit card company will charge you a late fee. These fees are usually very high. My credit cards charge between $25 and $35 if you don’t pay at least the minimum by the due date. Also, late payments will end up on your credit record and negatively impact your credit score. To make sure you are not charged a late fee, mail your payment in at least 10 days before the due date. Even better than mailing your payment, most credit card companies allow you to pay your bill online with no fee. This way you even save the price of a stamp. You can usually schedule your payment to be deducted from your bank account whatever day you choose.

Pay your credit card bill in full

This is the key to getting the credit card companies to pay you to use their card. If you don’t pay the bill in full every month, then you will have to pay finance charges. One month of finance charges can wipe out any benefit that you might receive from getting cash back. If you only make the minimum payment each month, it will take approximately 8 years to pay off your credit card bill, assuming that you don’t charge anything else to it.

Charge only what you can pay off

This is how the truly Frugal manage their credit cards (and basically the rest of their financial life). If you don’t have the money to pay for something, then you shouldn’t charge it. If you need something, you should save up enough money to pay for it before you buy it. If you save your money, and put it in an interest bearing account, then you win both ways. You are getting interest on the money for a month before you have to pay your credit card bill, and you are going to get cash back from your credit card company on the purchase.

Now that you know how to handle credit cards properly, check out our list of recommended credit cards that will pay you for using them.

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