Credit cards can be a double-edged sword. They can appear to be simple and straightforward, but can tailspin quickly if you are not paying attention. This is why Liann and I have a number of rules we follow when it comes to credit cards.
Here are our Top 7 Rules for Credit Cards:
Never Carry a Balance
This is our #1 rule. Never carry a balance on a credit card and always pay the statement in full! The interest you pay on the credit card statement when carrying a balance is so high and an unnecessary drain on your funds (most of the time). Carrying a balance also typically leads to the abuse of credit cards. So, to continually use credit cards responsibly, we don’t carry a balance. This is even true for credit cards with 0% APR (annual percentage rate).
Can’t Afford It? Don’t Buy It.
Credit cards can make the unattainable attainable, but that doesn’t make it okay. If you want to maintain financial responsibility, then that means passing up on the temptation of buying whatever you want. Live within your means and don’t buy what you can’t afford.
Maximize Credit Card Rewards
There are some big bonuses to using credit cards for specific purchases. There are so many different reward programs for credit cards, but the main takeaway from this is to use the credit card for the purchase that returns the best reward(s). This means every credit card has a purpose. We charge our travel expenses to the travel credit card, groceries to our every day purchases credit card, and online purchases to the credit card that has rewards for online purchases. This allows us to build our rewards faster rather than putting everything on a generic credit card.
Review Monthly Statements for Accuracy
Credit card fraud is a big problem nowadays and sometimes there are honest mistakes that happen. While credit card companies monitor for credit card fraud, it is still a good idea to review your monthly statements just to make sure there’s nothing unexpected. It saves you money, keeps you in sync with your spending, and gives you peace of mind.
Interest Lost is Cheaper than Interest Paid
Sometimes things happen that you can’t control and can be hard to overcome financially. Credit cards can seem like a way to soften the blow by offering some financial cushion. But at what price? As I mentioned earlier, the interest you pay on a credit card is often pretty high. This is where the emergency fund comes into play. Rather than carrying a balance and paying interest, Liann and I pay the balance in full from savings. This means we will be earning less interest on our savings until we pay ourselves back, but ultimately we have saved money by not paying the credit card interest.
Discuss Substantial Charges in Advance on Shared Cards
Liann and I share some credit cards and we find it best to communicate with one another whenever there is a “substantial” charge coming. “Substantial” is a relative term in this case, so it can be a $100-$1,000 charge. Since charges on certain cards affect both of us, we will discuss these charges in advance, before they are charged to the credit card. Although, one of these days, I want to tell her, “Hey babe, just bought a pool table for the living room on the credit card. Hope you are cool with splitting it!” just to see how she would respond…
Distribute Payment Due Dates
This could be considered more of a guideline than a rule but I’m including it. It is important to make sure you have flexibility in your payment due dates when managing multiple credit cards. To ensure all credit cards can be paid in full every month, we distribute the payment due dates throughout the month. This allows us to move money around to higher than usual payments if necessary.
So what you do think of these rules? What are some of your favorite rules or tips for managing credit cards? Let us know in the comments below.