Credit Cards and Your Personal Finances
When it comes to our personal finances it’s important to effectively manage our money and keep expenses down. That way, over time, we begin to build wealth – the ultimate goal of most personal finance plans. At the center of personal finance is our use of credit, and the credit cards we choose. In what’s become largely a moneyless society, most of us simply put all of our expenses on credit or debit cards rather than paying cash. And this change to a world where money has largely disappeared from daily use to one where we access a line of credit to may payment is a change that can either have a positive or negative impact on our personal finances.
In this article what we’d like to do is explore the best ways to use your credit cards to improve your individual personal finances.
Credit Card Use
It almost goes without saying that if you want to reduce your credit card expense, don’t carry a balance. A credit card should be treated like cash. With cash you’re limited to what you can spend based on how much you have. This is a good rule for credit cards too. Don’t spend beyond what you can pay back immediately. A credit card is best used to facilitate a purchasing transaction. Rather than having to carry around and fumble for the right amount of cash at the register, you can simply use your card and sign for it. And this convenience can be especially helpful at restaurants, and almost essential for online purchases.
Pay Down Debt
If you have credit card debt you’ll want to work aggressively toward paying it down as quickly as possible. Having credit card debt while trying to improve you personal finances is a little like the man pushing the rock up the hill only to have it roll back down again. Similar to him, despite good practices like saving and reducing expenses, you’ll always limit the progress you make if you have credit card debt with interest payments.
And you might be surprised at the current interest rates for some of your cards based on variable interest rates. That card you thought you signed up for with at 12% interest rate could now carry an interest rate over 25% due to changes in the variable interest rate the bank has imposed. Credit card debt with high interest rates is a real killer for personal finances.
The two best things you can do here is work out a plan to pay down your credit card debt and work with the credit card company to decrease the interest rate. Your plan should center around having a budget in place that targets a specific amount you’ll pay off each month, while also taking into account your other ongoing living expenses.
Another way to help speed up paying down your credit card debt is shifting balances from higher interest cards to low or zero interest cards – or what is often referred to as credit card surfing. If done effectively this can reduce the total amount of interest you have to pay when paying down your balances, which means more savings for you and getting to debt free quicker. But be sure to study the terms for the new card you’ll be shifting your balance to. They often have a one-time fee as a percentage of the balance being moved, and the lower interest rates will have a time limit to them.
Decrease Interest Charges
Asking for your interest rate to be decreased seems like a long-shot, a recent survey actually found that 56% of credit card companies were will to reduce the consumers interest rate (APR) when asked to do so. Other areas to potentially explore with your credit card company is getting a late fee waved, which many are willing to do if it’s the first time, and asking that the annual fee be waived or lowered. These days all three of these options are quite doable, and at a minimum it doesn’t hurt to ask.
Credit card companies are in competition with each other. In recent years to attract customers many have been adding incentives to get consumers to use their card for their next purchase. A primary way to achieve this is by giving redeemable points each time the card is used. The points can be used for other purchases or to help pay down a credit card balance. When making a purchasing decision your choice of credit card can be just as important. Choosing the card that will maximize your points can actually lead to a decrease in the cost of the item, when the points are applied against the credit card balance.
As we’ve seen, credit and the tools we use to access credit, like our credit cards, are an important part of personal finance. Being more aware of our credit cards and their role in our lives as consumers is an essential part of the formula for maximizing our financial success. Exercising financial discipline with the use of our credit cards and choosing the right cards to use will, in the long run, have a significant impact on the financial wealth we’re able to build in our lifetimes.