How to Use Credit Cards Correctly

how to use credit cards correctly


Credit Card Debt is the Worst.

If you were to stop me on the street and ask me, "Hey Meow, what's the worst type of debt?" chances are, without thinking twice, I'd respond, "Credit card debt!"

Maybe there are worse types of debt: loan shark debt may find you in bed with a horse head or without functioning kneecaps. Tax debt is also very nasty. But nothing is so widespread an evil as credit card debt. Millions of people carry it around blithely as it drains them of double-digit interest every year. 

Credit card debt is just a tithe to the big banks.

"Yet you have two credit cards and you seem to use them relatively often. What gives?"

It's true. I have two credit cards, both of them with relatively high interest rates, that I use fairly often. However, I never incur interest. I always pay them off completely every month.

Rewards Points:
Both of my cards are rewards cards, and I never spend money with them that I don't already have, sitting there, earmarked for the monthly pay-off in full. In return, the card company gives me few dollars every month in rewards points.

Keep in mind, if I were late with just one payment, or carried a balance into the next month, the fees and interest would obliterate all the rewards I'd earned!

Amazing fraud protection:
Credit cards can actually be a great tool for keeping safe! They're great for fraud protection- better than debit cards, too.

If my cash gets swiped, there's no getting that money back. If my debit card gets stolen and my checking account gets wiped, the process of reinstating it can be long and difficult.

Credit cards, on the other hand, have very friendly policies towards those who have had their identity stolen.

Once, some cheeseball stole my credit card number and bought $40 of Happy's Pizza in East Cleveland. All I had to do was file a police report, which took ten minutes, and the credit card company refunded me the whole amount. I still felt quite violated, and the bandit made off with the pizza, but at least I was made whole.

"Does my credit limit matter?"

I hear the same story over and over again: some young buck gets his first credit card, and believes that the credit limit is his spending limit, so he maxes it out. Perhaps he is able to keep the monthly minimum payment going, and ends up making thousands of dollars disappear to the credit card company over a long period of time. 

Or maybe he hits a hard patch down the line and can no longer make the minimum payment. Not only does he still owe all that interest, but the whole debt comes due and bill collectors start hounding him for it. It's an awful place to be, financially and psychologically.

Remember: your credit limit is not a spending limit. Your spending limit is how much money you actually have.

"What if I have an emergency and need the credit?"

This is what the emergency fund is for. Instead of putting your emergency on the credit card and paying extra for it later, save for it at your own pace before it happens. Have you ever had an emergency and wished you could go back in time and be more frugal? If there's one constant to life, it's that sh*t happens. Make that sh*t less expensive by saving for it in advance.

"I have to carry a revolving balance because it will help my credit score."

I want to say this loud and clear: NEVER PAY TO IMPROVE YOUR CREDIT SCORE. By paying your balance off every month before it costs you interest, and keeping your debts down, your credit score will increase on its own.

Credit scores are tricky things, because at the end of the day all they are is a measure of how likely a lender is to make money off of you. It is not a measure of how good you are with money. Frugal, stable, sensible people are punished by not having had enough types of credit, or not having a long enough credit history. It is an unfair aspect of the world and I would change it if I could.

"So what's the right way to use credit cards?"

It's pretty easy.
  1.  Never spend more than you can cover.
  2.  Pay it off IN FULL at the end of the month.
Some more tips:
  1. Set up an online account and download the app to check your spending in real time.
  2. Always go over the items on your statement- not only for budgeting reasons, but to see if someone skimmed your card number and went shopping with it. Even if the fraudulent transaction is small, put the kibbosh on it right away. Credit card thieves will sometimes make a small purchase to see if you notice... then move on to larger ones if they got the first one past you.
  3. Put it on autopay so that you don't derp out and get hit with late fees. This is not an excuse to not check your statement, but an insurance policy in case something comes up and you can't send your payment in time.
  4. Never have more credit cards than you can handle keeping an eye on. I check my balance about once a week.
  5. If your card gets stolen or you lose it, call the company right away and have them send you a new one! Many companies have 24-hour hotlines for this. Write down the number and keep it somewhere OTHER than your wallet- in case your wallet gets swiped.
Do you have any credit card tips you'd like to share? Let me know in the comments!

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