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. I get a rebate check between $600 and $700 every year. 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 wisely.
- 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 really high. My credit cards charge between $25 and $35 if you don’t pay at least the minimum amount by the due date. Also, late payments will end up on your credit record and negatively impact your credit score.
To make sure that you are not charged a late fee, set up your payment as soon as you receive your bill. Go online to your banks site as soon as you get your bill and make your payment. I usually set the payment for the day before it is due.
There is one credit card I have that for some reason I have missed paying a couple of times. I think the due date is in the middle of the month when nothing else is due and I forget it. Fortunately they let me set it up to automatically pay the full balance each month. This makes sure that I never miss a payment and get a late charge. Just make sure that you do have enough money in your bank account to pay your balance.
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. Always pay your bill in full EVERY month.
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. You can 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.
Watch your cash back amount rack up
If you are not paying a fee for the credit card, and you are paying it off each month, you can sit back and watch your rebate build each month. It’s great to see the amount that the credit card company is going to pay you.
However, don’t get caught up in the thought that, “if I buy this item, I’m going to get more cash back.” If you are buying something that you don’t really need, just to get cash back, you are still losing money.
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.