The idea of using a credit card often inspires an irrational fear in consumers about going into massive debt.
While poor usage habits and a lack of understanding of credit cards as a tool can lead to this, the best practices also come with a lot of perks for savvy credit card users.
Two of the evergreen rules of being a constructive credit card user are – charge your card based on what you can afford, and do not forget to pay your bill every month!
If you follow these two rules sacrosanctly, you can reap multiple benefits and enhance your lifestyle in unimaginable ways over time.
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A Source Of Free Money
The best part about joining the world of savvy credit card users is that you get access to “free money” – literally.
As you use credit cards even more and more, you can save hundreds of dollars in a year, sometimes thousands, by redeeming the reward points collected against all your purchases.
Credit card users can also access a host of other perks – from travel miles, brand partnerships, and other unique features.
Fund Out-Of-Pocket Medical Expenses
While you might have health insurance, several medical expenses do not get covered by your provider. This can include dental care, vision care, and home health care.
Thus, millions of people delay visits to the doctor when they experience pain, bleeding, or any other serious medical issue. However, by using your credit card, you can access the benefits of, for example, dental implants financing options or other similar schemes on offer.
This way, credit cards allow you to get the care you need on time rather than neglect the issue until it aggravates to unimaginable proportions.
Start Travelling The World
Savvy credit card users are usually much better traveled than their non-savvy counterparts. This is because they have identified the secret sauce of spending and accumulating free travel miles, hotel stays, and fuel allowances to reduce their travel costs drastically!
Having a credit that is a focused travel card is a great idea if you have a passion for the wanderlust instead of a general one. With more and more usage, “traveling for free” literally becomes a way of life!
Needs And Aspirations
Most of our spending can be categorized into two purchases – needs and goals. So, for instance, if you pay your monthly expenses such as cellphone bills, insurance premiums, etc., they would come under the needs category.
On the other hand, you may decide to upgrade your electronics, fridge, and other such household expenses. Using your credit card to fund both types of purchases is a great idea as you accumulate rewards and points and get to reap the benefits.
Online purchases and event tickets are also best put on your credit card.
Fund Your Side Hustle
You might have many dreams and aspirations. It could be from studying a new skill or buying equipment that can help you pursue your passion. The main barrier might be the astronomical price of the item.
Having a credit card can help you pursue these dreams earlier and also reap the benefits of interest-free EMIs. Thus, it also helps you accumulate a large number of reward points at a short.
This is a great use of a credit card for a big-ticket purchase, as it helps you enhance your knowledge and even turn a skill or passion into a side-hustle.
It Helps Improve Your Credit Score
When you demonstrate your ability to use a credit card responsibly, it improves your credit score over time. This is a key metric used by financial institutions to open many doors of opportunity for you.
For instance, if you are considering the option of financing home improvements, especially if it is a high-cost project, a good credit score improves your chances of being considered for financing.
Your Ability To Negotiate Improves
No matter what you are purchasing – whether it is a new home or a vehicle – a high credit score gives you more power to ask for attractive deals on your purchases. For example, lower interest rates.
With a good credit score, you are in a better position to bring down the cost of your insurance, whether it is on your home or your car. You are essentially viewed as less of a risk and an ideal consumer.
Of course, you still need to negotiate for the best deals, but it gives you better leverage.
The Key Risks
While the awards are amazing, there are certain risks that you must be aware of.
- You must develop healthy credit card usage habits. For example, you must always pay your bills on time to avoid having to shell out late fees. Ideally, put a reminder in your calendar so that you never miss a payment.
- Never purchase if you do not have money in the bank to fund it. This will start a cycle of poor credit debt and reflect on your interest rates, which will compound over time, leaving you in the red.
- Never let your credit card out of your site, especially if it does not require a code to make a purchase. If possible, try to get a contactless card that allows you to swipe without contact.
- Choose a new credit card wisely by understanding all the benefits. Some cards offer low value and do not yield much of a benefit. Also, check aspects such as annual fees and hidden expenses. Calculate the cost of the card versus the rewards you will reap.
When You Are In Credit Card Debt
If you are in debt, then you must come up with a plan to pay off your debt. List down all the amounts owed on all your cards in one place, interest rates, and principal amounts. Now that you have all the facts in one place, you can evaluate the best way to start the payments.
For instance, avalanche and snowball are two accelerated credit card payment styles. Choose the one most relevant to your situation, and start rebuilding your credit score. Find an accountability partner who can support you in this journey.