The first thing you might be thinking as you read this post is your missing the debt in the title. Don’t you mean how to manage credit card debt? That in itself is the main lesson to dealing with credit cards never keep a balance. I learned this lesson from my father by watching his example. He regularly used his Discover card during vacations and general purchases but he always made it clear he paid it off in total at the end of every month. Never be a slave to credit card debt were words that came out of his mouth on many occasions. I got my first credit card freshman year in college and always followed his no credit card balance motto to this very day (thanks Dad). That is the same type of gift you need to give yourself and your children when it comes to credit cards. Use them for their convenience, side benefits, and to avoid carrying large amounts of cash but never charge on them what you can not pay off when the balance comes due.
I read many things about using credit cards that I do not agree with for example:
- Don’t let college age kids (or younger) get credit cards – I agree with this if the kid has not had a solid example of how to use credit while growing up or lacks willpower to abide by never keeping a balance. Kids without willpower will struggle in many other areas of life too so the key is to make an impression on the child about the right way to use credit (no balance, pay it off every month).
- Don’t use your credit card to make everyday purchases like food, clothing, and gas – Using your credit card as a substitute for cash is a habit that can quickly lead to debt. – I totally disagree with this the credit card is a perfect way to pay for these purchases (and earn cash back) so it once again boils down to willpower and good using good financial judgement
- Stay within 30% of your credit limit. A large part of your credit score considers the amount of debt you have – Dumb advice here decide to build good credit by always paying off your balance on time instead.
- Negotiate a lower interest rate – Won’t matter if you focus on the basics and never charge what you can’t pay off. Playing the lower rate game may be good if you are trying to correct past mistakes but don’t let it become a way of life once you are free of your credit card debt.
- Have multiple cards to build up credit – One or two cards is all anyone needs so don’t buy into the theory that more cards making regular payments = better credit.
So what is my take on how to manage your use of a credit card effectively?
- Control your spending – If you can not pay it off when the bill is due you can not afford it so save up and wait until you can. This gets to be a matter of willpower so make it a rule and stick to it.
- Choose an affinity card that suits you best – It might be companion tickets, hotel points, or direct cash back whatever it is pick a card with a reasonable annual fee that meets your goal. Use it regularly for purchases and make sure to take advantage of whatever benefits you originally wanted to get out of the card. I am a sucker for hotel points and free nights so I use the Marriott black card.
- If free stuff isn’t your thing – Pick a card with no annual fees and make sure to pay on time to avoid late charges.
- Be a good credit example to your kids – My dad taught me valuable lessons through example at a young age. This is a great way to help your children or other relatives build lasting positive habits.
- If you already have credit card debt – Stop charging things you can’t afford and make a plan to get out of debt. Pay it off aggressively as soon as you can and don’t get tempted into the minimum payment trap.
Credit cards are meant to be a convenient way to make purchases you would be making anyway and can afford. If that is not how you are currently using your card take a hard look at your financial habits and what kind of changes you want to make so that you can reach your financial goals and be a good example to those around you.