Dos and Don’ts of Credit Cards

Dos and Don’ts of Credit Cards

Credits cards often get a bad reputation in the financial world and are viewed as the bane of some people’s existence. Some people insist that you should never use credit cards because they are so risky and dangerous.

This is an incredibly one-sided view of credit cards. Sure, some people may abuse them and end up on the wrong side of credit card debt. However, for many other people, they are a very valuable tool. To help you figure out how to get the most reward from your card, we’ve created this list of dos and don’ts

DO – Use them for big purchases
Since credit cards will give you rewards (usually in the form of points or cash back), it can be smart to use them for large purchases. Doing this will give you the quickest route to earning those rewards. However, there are two things to be aware of when doing this.

  1. Don’t go over your credit limit. Your credit limit is the max you’re allowed to buy using a credit card. Spending too much can lead to fees or hurting your credit score.
  2. Don’t spend money that you don’t have. We will examine this further in detail later. However, it’s very important to not buy something with a credit card just because you can. If you don’t have access to cash to pay something off in full by the due date, don’t buy it with a credit card.

DO – Get rewards that are valuable for you
As we mentioned, credit cards offer all kinds of different rewards. For example, some cards will offer you cashback, some will offer travel rewards, and some will offer points that can be used as gift cards or cash towards your favorite stores. While you’re looking around, think about what types of rewards are valuable for you.

DO – Only have one to three credit cards
There’s really just no need to have any more than this. Any more than three cards and it starts to become difficult to keep track. This can be where trouble starts because you lose track of which cards you’ve been using and which ones you need to pay.

DO – Pay it off in full each month
This is definitely one of the most important rules on this list. Each month when your credit statement is due, make sure that you are paying the full balance. If you do not, you’ll end up paying tons of additional money in interest. The average credit card interest rate is 19.02% for new offers and 15.1% for existing accounts. This is what credit card companies want and how they make their money.

DON’T – Spend money that you don’t have
This is the number one rule of having a credit card. It is so important that we listed it in the “dos” and the “don’ts.” Always remember to not spend money that you don’t have. This is what credit card companies hope you will do so they can keep you in debt and paying them interest. It is critically important to know how much cash you have on hand at all times to make sure you can pay off any credit card at a moment’s notice.

DON’T – Be careless
This may be easier said than done, but don’t allow your credit cards to rack up debt without knowing exactly how much of a balance each card holds. You can quickly get into trouble if you’re swiping first and worrying later.

 DON’T – Carry large balances
Carrying a large balance (even if you have the ability to pay it off) can ding your credit score. Instead, pay your card off in full each month.

 DON’T – Get suckered in with attractive deals
Credit card companies make money when you use the card and don’t pay it off. To try to get as many people swiping their cards as possible, they lure you in with attractive offers. Usually, these deals involve spending a certain amount during the first couple of months of owning the card. If you’re not going to spend that amount anyway, don’t sign up for the credit card.

We hope that you found this list of dos and don’ts regarding credit cards useful! If you’re interested in learning or reading more, please let us know. 

 

 

FSA’s current written Disclosure Brochure and Privacy Notice discussing our current advisory services and fees is also available at https://fsainvest.com/disclosures/ or by calling 301-949-7300.

 

 

 

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