Credit cards can be a really useful thing, but they can also get you into trouble. Charging up huge balances on credit cards means that you’re going to have to pay it off over the long-term and that can result in a great deal of interest.
Whether you want to cut yourself completely off from credit cards for you just want to stop using them but still have them available, the answer often requires changing the way that you think about credit cards.
Most people don’t even understand how their credit card works, and when the bill comes it is a huge surprise and a major burden.
In this article, we will look at the things you need to know about your credit card and some strategies for avoiding its use whenever possible.
How to Use a Credit Card Correctly
The first thing that you should understand is the real reason why people should use credit cards.
Credit cards should be used to show that you have a solid history of paying off their bill so that you can be approved for other types of loans or credit.
Credit cards are useful because you can spend just a little bit of money on them each month and then pay it off.
For example, if you were just to spend five dollars on your credit card each month and then pay it off, not only would you not have any interest or additional costs, you would also be building up credit with every single payment because the credit card company will report your good payments every month or every three months to the credit bureaus.
Most people have several credit cards that they use regularly and then pay off each month. At least, that is the responsible way to use them.
By having several credit cards, not only are you ensuring the multiple good payments get reported to the credit bureaus, but you are ensuring that all of the credit bureaus get updated with some good payments. Not all credit cards report to every credit bureau, but all of them report to at least one and usually more.
The other reason that people have credit cards is for emergencies. Spending a tiny amount on your credit card each month is useful for building credit, but you want that available balance to be high because if an emergency happens, and you have to pay for something such as a medical expense or a vehicle repair, then you’re going to want to have the money available.
Maxing out your credit cards for frivolous expenses is not the way that credit cards are intended to be used.
Read our Credit Card Guides:
Calculate the Extra Expense with Every Purchase
It is very easy to make a purchase that the credit card without thinking about the bill when it comes due. Many credit cards do not charge you interest until you avoid paying the balance off in full when the bill comes.
But you have to remind yourself that the bill is coming in on what day it will arrive. If you choose to make a payment that is less than the entire balance, then you need to be aware of how much interest is being added to what is left and how often the interest is being multiplied.
This is one of the best strategies for avoiding credit card use. When you’re thinking about making a purchase, sit down and calculate how much of that purchase you will be able to pay off when the credit card bill comes due.
Be honest with yourself. If you know that you are not going to build to pay off the balance, then write down how much you think you can pay and calculate the interest that is going to be added to the remaining balance. Then look at the payment for the next month and the month after that. Write it all down as future expenses. Then you can decide whether or not the credit card purchase that you are thinking about making is worth it.
The main thing is that you do not make impulsive purchases with your credit card. You might see an item in the store that you are tempted to buy and know that you have a balance of your credit card to get it, but you need to step back and evaluate whether or not that purchase smart financial decision before you buy.
If you go home and you realize that you need the item that you looked at, and you can pay it off quickly, then it may be worth it to go back and put the item on your credit card. However, you should always give yourself a chance to evaluate the situation first.
Get Rid of Multiple Credit Cards
Having multiple credit cards can be great for building up credit. Having multiple credit cards showing on your credit bureau accounts, all with good payment histories is definitely going to raise your credit score and make people want to extend credit to you.
But having multiple credit cards also creates an issue where you think that you have lots of money to spend because you have a lot of available balance on your credit cards. For some people, having five different credit cards each with $1000 limit can make spending $500 a month frivolously very easy to do.
If you are not that concerned with building credit, and you are only using credit cards for emergencies, then consider just keeping a single credit card with a high limit and a low interest rate so that if an emergency does happen then you are covered. But you are not tempted to spend money because you have lots of cards that you could put the purchase on and worry about later.
There are definitely lots of credit cards available to those that have good credit. Once you have good credit, and your address gets out there, then you will receive offers from credit cards all the time. In fact, some companies will send you credit cards with a limit already established in all you have to do is go online and activate them.
In addition, stores provide credit cards for purchase of their products. It can be tempting to have these credit cards as well because they will often attempt to entice you with the huge discount on your current purchase just by signing up for a store credit card.
From that point forward, you always have that store credit card in your wallet and you will be tempted to use it when you’re shopping at that particular store. Those stores are counting on that specifically.
Always Set Money Aside for the Payment First
By making sure that you have money set aside for the credit card payment beforehand, you are ensuring that first of all, the credit card bill will get paid and second of all, you will have a reason not to make the purchase with your credit card if you do not want to.
Many people use this model in order to build credit. They decide that they want a particular purchase, and then they set aside money to pay for that purchase. Once they have enough, then they get it with their credit card and pay it off over several payments using the money that they have already set aside. This works well when it comes to building credit because you are making the payment on your credit card and paying off the balance.
But if you find yourself using your credit card frivolously or having trouble making the payment when it comes due, you can also use this as a way to keep yourself from spending that money. Whenever you want to make a purchase over a certain amount with your credit card, and then simply make it a rule that you cannot spend that amount of money until you have actual income set aside in your checking or savings account to pay for it.
If you can follow this rule, it will keep you from making those purchases that you find later you cannot afford.
The credit card is not an excuse to go shopping and have fun. One of the most successful ways that people use credit cards is by creating a monthly budget when their income comes in and then paying for certain things with a credit card. This allows you to use your credit card absolutely guilt free because you are using a for something that you actually need and that is in your budget, and it builds credit while still making sure that you do not pay huge interest rates.
Read: Guide to Reward Cards
If You Can’t Stop Swiping, Cut Them Up
If you cannot stop using credit cards, and you have tried all the other strategies that we have discussed here, then it might be time to cut them up entirely.
This is not a metaphorical ‘cut them up’. This is actual taking a pair of scissors and cutting your credit cards in half. If you find yourself still spending money on your credit cards after you have made a commitment to not use them, then it might be time to remove temptation altogether.
You simply get your credit cards and cut them in half and throw the pieces away. Of course, you are still going to be responsible for your credit card bills that are due and for any balances that you racked up, but you will not be adding more to the debt.
The problem with this strategy is that you no longer have credit cards available for emergencies. That means that you are going to have to make other plans and take other initiatives in order to make sure that you are prepared in the event of an emergency.
If you do not have credit cards, then you should have a savings account with a least a couple months of salary saved up. Having two months of salary saved up will allow you to survive if something happens to your job temporarily, pay medical bills if they come up unexpectedly and have enough money for things like car repair bills or other expenses that you have to pay in order to continue getting to work and maintaining the same quality of life.
One thing that you definitely want to keep in mind is that just because you have cut your credit card does not mean that credit card companies are going to stop sending you offers and credit cards that can be activated immediately. In other words, the temptation may still be there.
You will have to decide for yourself how you are going to handle this challenge. While you can be removed from these mailing lists, it can take several months to stop the process completely.
In the meantime, if you encounter a credit card, then simply cut it up immediately without even looking at the various terms and attractive offers a come with it.
Read the following Guides on how to Save Money:
The bottom line is that while credit cards can be extremely useful and helpful for certain people, you have to keep in mind that credit card companies are interested in making money off of you and getting you is deeply into debt as possible.
Their entire business model is created around this action. The deeper in debt you are, the longer you will have to pay them off and the more they learn and interest from you.
If you find the you cannot use credit cards responsibly, then it is time to take a pair scissors and cut them up.
Getting rid of credit cards altogether is definitely preferable to having credit cards available that have massive balances that you will have to pay over time.