Home » Blog » How to Manage a Credit Card Wisely – 5 Tips for Healthy Spending

How to Manage a Credit Card Wisely – 5 Tips for Healthy Spending

Introduction to credit cardsCredit cards are a great financial asset if used properly, but also a great danger if mistreated. Unfortunately, we are not taught about healthy habits for using, and maintaining a major credit card.

However, managing a credit card is not hard, and using these 5 tips will help you master your credit financials.

Before I get right into the 5 tips on how to manage a credit card wisely, let’s take a look at what a credit card really is.

This may be old news to some of you, but bare with me, because understanding your credit card is the first step to healthy financial management. 

 

Within this guide:

 

Let’s Step Back – What Exactly IS a Credit Card?

When you apply for a credit card, you are actually applying for a loan. If approved, this loan will reside within your newly opened credit account, where you will have access to it via your shiny new plastic credit card.

Don’t be fooled into thinking this is money is yours. IT IS NOT!

The starting credit limit is most often roughly $1000, which means that you are able to BORROW a total of $1000. This is not a traditional one-time loan, and will return to it’s original amount as you pay off your debt.

For example:

If you spend $400 of your $1000 limit, your remaining balance will be $600.

If you then pay your $400 bill (plus interest rates), your balance will return to it’s original $1000.

Simple enough right? Most of you will already understand the fundamentals of credit cards, but it’s important for everyone to remember:

  • Credit card loans have some of the highest interest rates
  • Spend wisely
  • Always pay your bill as quickly as possible

 

Types of Credit Cards – Yes, There’s More Than One!

Credit cards come in many different shapes and sizes (figuratively speaking), which often makes choosing the right one difficult. There’s an extensive list of potential credit cards available, all with different options, limits, benefits, interest rates, and annual fees.

Here’s just a small taste of the most commonly used credit cards today:

Always remember to check the terms of the credit card before applying, so you don’t get hit with unexpected APR (Annual Percentage Rate) growth, or annual fees! 

1. General “Everyday” Credit Cards

Balance transfer – These credit cards allow you to transfer a higher interest rate loan over to a lower rated one. This can be either a low fixed rate interest, or it can increase over time, and there can also be annual fees.

Low interest – Intended for larger layaway purchases, these credit cards are great if you need to purchase something expensive, but need a few months to pay it off. These cards typically start with a zero APR that grows over time.

2. Rewards Program Credit Cards

Reward points – Credit cards that offer a reward points system, where customers accumulate points based on a multitude of factors such as; amount purchased, purchasing frequency, and credit level. 

Cash back – Similar to the basic reward points credit cards, cash back cards offer small cash back incentives when purchasing from participating retailers. Cash back is different from points, as the cash back does not have to be redeemed like reward points.

Gas points – A specific form of reward points credit card that offer special gas discounts, and store specific reward points for those who spend a lot of time filling up the tank.

Hotel and travel points – Similar to gas points credit cards, these specialized credit cards offer discounts, and unique promotions for travelling and vacationing. 

Retail rewards – Specific credit cards that offer much more incentives, such as high reward points earning, or other special promotions, but only reward these incentives if used to make purchases from that specific retailer.

Airline miles – Similar to hotel and travel points credit cards, these credit cards offer free flying miles for everyday purchases at participating retailers. Use these points to get airline tickets within the given amount of miles that you have accumulated through the points system.

3. Specialized Credit Cards

Student – Designed for students within 4-year college/university programs, these credit cards are easily attainable. They are specialized to help students with no credit history build one from scratch, laying the groundwork to apply for special rewards cards, or better credit limits.

Business – Although maintaining many of the same features as a regular credit card, business credit cards offer a wide selection of further options, solely for those within the business world. These options may include higher credit limits, multiple employee credit cards, separate expenses for personal/business use, etc.

4. Bad Credit/No Credit Credit Cards

Prepaid – Requiring no credit rating, these credit cards are arguably not credit cards at all. They can be used the same as a regular credit card, but they require upfront payments. These cards are a great way to not build up debt because you always pay in advance. But be careful, because these cards will sometimes have deteriorating values.

Secured – A secured credit card is for those with bad/no credit rating, and want to rebuild their credit history. These cards most often require a large security deposit, have a low credit limit, and will usually have either a startup, or annual fee. 

Although you may recognize a few of these credit cards, there are probably some that you don’t. I recommend familiarizing yourself with at least these 12 sub-categorized credit options, as they could be beneficial to your particular financial situation, or spending habits.

 

How to Choose a Credit Card – Don’t Goldilocks Your Decision!

Choosing the right credit card is important so that you don’t end up overpaying on interest rates or annual fees. Make sure the card you choose pertains to your current financial situation, but also stay informed about updates to credit packages, or new ones becoming available.

Don’t “Goldilocks” your credit card and try them all out until you find one you like. Do your research and ultimately, ask your bank about all the options available to you, because not all of these credit cards will be relevant to your situation.

Some things to ask yourself before choosing a credit cardSome things to ask yourself before choosing a credit card:

  • What specifically do I need this card for? Or is it just general use?
  • Are there rewards points that I may be able to take advantage of?
  • What are the terms and policies of the credit card?
  • Is there an annual fee? If so is it worth it?
  • Will I be able to pay the interest rates if I start reaching my credit limit?

At the very minimum I suggest opening a low-interest credit account with no annual fee. Even if you have a credit card and use it once a week, you will still build good credit.

This is extremely beneficial for a number of reasons, briefly including; it’s easier to get a credit increase, and it’s easier to apply for another type of loan (mortgage, auto, business, etc.).

Plus, when the time comes that you do need to start using your credit card, you will already have a strong history with your creditor that will help leverage better deals.

Understanding Interest Rates – Get Ahead Before You Fall Behind

If you don’t already have some form of credit card, I highly suggest applying for at least the most basic package, with no annual fee. It’s highly beneficial to build a good credit rating for a number of reasons.

But before you go choosing a credit card, make sure you understand interest rates. As I mentioned before, credit card loans have some of the highest interest rates of any loans, so be careful!

Interest rates

Interest rates on your credit card are calculated and expressed as an APR (Annual Percentage Rate). This charge can be avoided by paying your bill within the “grace period”, usually within 3 weeks.

Your remaining, unpaid balance will then be charged as a finance charge, which is determined by a number of variables, all dependent on the credit card package you choose.

I cannot stress enough the importance of reading and understanding the full terms of a credit card before applying.

Suffice it to say that your credit card interest rate will be charged as a percentage of your remaining balance if left unpaid. These rates are subject to change, depending on a number of given situations, so stay informed!

 

5 Tips to Manage Your Credit Card – Live Debt Free!

1. Review your credit card package regularly, and always have one ear peeled for newly available options that you can take advantage of. Staying current is the best way to ensure you’re getting the best deal, and it will help you build a habit of keeping a close eye on your credit card statements.

 

2. Don’t spend more than you can afford to pay off. Although this seems like an obvious tip, it’s incredibly easy to fall into the habit of spending slightly more money than you actually have. This is a slippery slope that will lead to large amounts of debt that you cannot pay off in the future.

Start yourself off with good, healthy spending habits. Breaking bad habits is not usually easy, so don’t get yourself into them in the first place!

 

3. Pay off your highest debt first. If you have more than one credit card, which is quite common, it can get much harder to manage both accounts.

The higher your accumulated debt, the higher your interest payments will be which makes paying off your debt harder.

The more interest you are charged, the less of your payment is put towards your actual debt. So paying off your highest debt as quickly as possible is ideal.

 

4. Make regular, scheduled payments so you never receive penalties for late payments, or increased interest rates. If you schedule your payments to a specific day each month, you are more likely to remember to pay your bills.

It will also get you into the habit of planning around making payments on a specific day, so that you can budget around this.

I suggest scheduling at least 2 payments every month, which keeps your bill as low as possible.

 

5. Make sure to review each credit card statement that you receive, either by mail or within your online banking account. If you have access to online banking, and can view your credit transactions/payments online, then you should be checking this at least once a day.

Debt can pile up quickly if you aren’t careful, so it’s important to monitor your transactions and review your balance as often as you can.

Also, it is uncommon, but you can sometimes be overcharged by either retailers, or your creditor. If you aren’t monitoring your account, you’ll end up paying for these overcharges without ever knowing.

 

Understanding Your Credit Card Statement – Don’t Be Overwhelmed

In order to properly manage your credit card, you’ll need to understand your credit card statement. You will receive one of these either every month, or quarterly from your creditor by mail, or via your online banking.

Your statement will look something like this:

Fictional Credit Card Statement

This sample credit card statement is relatively short, but still contains quite a bit of information.

What you will need to look for:

1. Payment due date – this is the date that your minimum payment must be received by. If you don’t pay at least the minimum payment, you will be at risk of your credit rating dropping, as well as being denied further loans, or credit card applications.

2. Minimum payment – the minimum required payment to not receive late fees, or damage to your credit rating. You should be paying at the very least this amount, but adding more is always better.

3. Payments/credits – any payments received to your credit account within the statement period will appear here. This will be subtracted from your total owing balance. This will not show any pending payments that have not yet been authenticated.

4. Fees/Interest Charges – any charges that you incur from interest rates, or other fees specific to your credit card will be added to your owing balance. Keep a close eye on these charges, so you have a good idea of how much to budget yourself for your credit card payments.

5. Transactions – purchases made using your credit card will be added up and totaled here. They will then be added to your previous balance (minus any payments, plus any fees or interest charges) for a total owing balance.

Your transactions will also be displayed in detail below the main statement information, so you can confirm the purchases you’re paying for.

6. New/total balance – your balance total is the total amount that you owe. This amount is calculated by:

  • Adding interest rates/fees to your previous balance
  • Subtracting payments/credits
  • Adding any further transactions

You do not have to pay the full owing balance, just the minimum payment. However, any remaining balance on your card after the payment due date will be charged interest.

7. Total fees/interest paid – somewhere near the end of your statement, will be a total for the fees and interest that you have paid for the current year. This figure is important because you can calculate whether or not your credit card is worth it.

It’s a good way to keep track of how much money you’re spending on just using your borrowed money. It can put things into perspective for you, as to how much money you lose if you don’t pay your bills off in time.

How to Pay a Bill – Even Though You’d Rather Not!

How to pay a bill

There are a few different ways to pay a bill, the most common being visiting your bank, or online banking. If you have online banking (and I recommend getting it if possible) is a great way to manage your accounts on a daily basis.

The easiest way to set this up, is to go online to your banks website, and register for online banking. You can also visit your bank and have them do it for you.

The process is easy, just make sure you keep your account safe!

If you use online banking, then I suggest paying your bill as often as possible. Keep your balance low, and you will avoid high interest payments.

Paying a bill online is different between each financial institute, but the steps will be the same and very straight forward:

  • Login to your account
  • Go to “transactions” or “bill payments”
  • Choose the originating account/destination account
  • Select amount to transfer
  • Confirm transfer

If you’d rather pay at a bank, take your credit card, and credit card statement to the bank and the teller will help you make the payment.

I recommend visiting a bank and making a payment at least twice a month if you prefer this method.

 

If you leave your payments too late, your debt will start to accumulate with late fees and interest, and it will be very hard to pay off your debt.

 

Final Note – What’s the Point of Having a Credit Card?

Although it seems that having a credit card may be more trouble than it’s worth, there are actually quite a few benefits to owning a credit card. Besides the obvious benefits of having an available line of credit to use when needed, you will also be building a credit history.

Even if you don’t use the credit card on a regular basis, as long as you keep paying your bills, and keep meeting due dates, then your credit rating will grow.

Loans are a necessary part of life today, whether it be a business loan, an educational loan, auto loan, mortgage, or anything else, people borrow money everyday.

Regardless of whether or not you see a need to borrow money now, you will most likely at some point want to buy a house, or a car, or something expensive you maybe don’t have the money for at the current moment.

This is where your bolstered credit rating becomes useful. 

Your loan will be substantially easier to get, as well as have a lower interest rate/charges because the banks and creditors trust you.

But remember, just because you have a credit card with credit just waiting to be spent, does NOT mean that you have to spend it. In fact, you should do everything you can to avoid spending that credit as much as you can.

 

Share Your Thoughts!

What are your financial goals? Do you have a plan in place to pay off your debt, or manage your credit account? Share them with the rest of the online community by leaving a comment below.

If you have any questions or concerns I’ll also be more than happy to address them in a timely fashion.

 

All the best,

Isaya

Roadtoselfemployment.com


 

Knowledge = Money | Share the Wealth!

8 thoughts on “How to Manage a Credit Card Wisely – 5 Tips for Healthy Spending

  1. Sofia Kalu says:

    Hi
    This is a very good and informative information to the public and to me also. It not only inform me but also educate me on my own financial issues and how to spend. Your article is to the point and has cover every aspect of a credit card.

    1. Isaya says:

      Hey Sofia,

      I hope you gained some useful knowledge about how to manage your credit card. Credit card debt can be so easy to build, and so hard to pay off. It’s better to not accumulate it in the first place!

      Isaya

  2. Sarah says:

    OMG,,, what a superb article with a lot of great tips about using credit cards. This is the article which everyone should read and follow the advices and tips mentioned… I appreciate for your good work, keep it up👍

    1. Isaya says:

      Hey Sarah,

      Thank you so much for your kind words. I’m glad that I could provide you with some useful information about how to manage a credit card wisely.
      Debt is a terrible thing to overcome, but it feels great when you do!

      Isaya

  3. Hector Diaz says:

    Wow! Thank you soooo Much for this information. This is definitely not something that you learn from school and thanks to your post I learned a lot of information that I didn’t even thought about Credit Cards and how to correctly use them. Credit is so important in our lifestyles and we need more people like you to help us understand it correctly 10/10 I LOVE IT!

    1. Isaya says:

      Hey Hector!

      You’re most welcome!
      I have struggled with credit card debt in the past, and it has brought on a lot of stress and anxiety for me. After learning about proper credit card management, and overcoming the vast majority of my debts, I felt compelled to share the information I learned with others. Living debt free is a great feeling that far too many people don’t experience.

      Thanks for taking the time to leave a comment, I love the energy!

      Isaya

  4. Peter says:

    Credit cards can be very helpful but they need to be used correctly. With the help of your post myself and many others can now manage their finances safely and sensibly. Thank you!

    1. Isaya says:

      Hey Peter,

      Managing your credit card properly from the beginning puts you at a huge advantage. Hopefully you can use the information here to set yourself off on the right foot!

      Isaya

Leave a Reply

Your email address will not be published. Required fields are marked *

*
*