Usually there is always some people who say that “Plastic is Evil” or “Credit Cards are evil” and make you fall into debt. Yes this is true if you are careless. Let me share a personal story. When I was just out of college and started working, I racked up almost $ 40,000 debt in credit cards due to not paying money back on time. I then had to take a personal loan to pay it back (which is off course good since the interest rates are lesser).
My wife also fell into the same trap when she started working. But these days, I’m able to use credit cards much wisely and maximize my cash flow. The main thing to understand about credit cards is the billing cycle.
So for example, if I know that my credit card statement is due on the 10th of this month, I may end up buying a big ticket item on the 11th. This will be billed only next month 9th and then i’ll have another 30 days or so to pay it. In effect, I can get a free credit line for about 55 days. This is extremely useful and effective provided you buy things that you would normally have bought with cash and is within your means.
The other good thing about credit cards is the bonus points, I used to rack up bonus points by spending money on my credit cards and getting a $ 1,000 voucher for filling in petrol. I’ve done this many times. In each case, I had the money and could have easily paid for the item in cash, but instead used the credit card as a way to increase points. There are several credit cards with several different points schemes, so find the best ones that work for you.
One trick that I use and find very effective is to have 2 separate bank accounts, 1 for my credit card payments. So every time I make a purchase on my card, I immediately transfer the equivalent money to that particular account. That way, I know that the purchase i’m making is not only something that I can afford, but also have the cash ready to pay back whenever needed
Remember Your Limits
When using your credit card, stay within 30 percent of your credit limit. For example, if your card has a $5000 limit, keep your balance below $1500. Part of your credit score is based on how much of your credit you actually use. If you keep balances low, your credit score will be higher. Higher credit scores will help you get better rates on loans for homes and automobiles.
You do not need to be afraid of using credit cards. Learning to manage credit is a very important part of life. Use your cards and then pay them off each month. Think about negotiating for a card with better interest rates or a rewards program. Being a responsible card user is a good feeling to have.