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Using Credit Cards to Your Advantage


Continuing on the topic of debt management strategies, we weigh the benefits of having and using a credit card. A credit card can provide several opportunities, as long as solid discipline is exercised. When you consider opening a credit card, it may help you to keep the following tips in mind.

There are enough “0% interest rate” offers and rewards credit cards sent out to us that even mail carriers may be overwhelmed! These programs can provide benefits, but beware of obtaining credit solely for these purposes. Most rewards cards have annual fees, and sometimes have restrictions on claiming the actual rewards you earn. With 0% offers, you must still meet the minimum monthly payment each month to defer the interest, and if there is a balance at the end of the introductory (promotional) period you will have to pay back any interest that was deferred.

To make credit cards work for you, remember to stick to your spending plan each month and strive to pay your balance in full each month to avoid paying interest. Pick one card to use and keep charges well below your available credit limit, to build your credit history. Having a credit card with one of the reputable card companies can be a good way to establish credit history, but allowing your balance to remain close to your credit limit may actually hurt in the eyes of the major credit bureaus; as it might appear that you are dependent on the card to cover living expenses.

By opening more than one credit card at a time, you can also put yourself in the undesirable position of having to pay too much at the end of each month; in addition to your other monthly bills. Sticking to your monthly spending plan will allow you to account for any expenses incurred by using your credit card and will ensure that you have the necessary funds available to pay off your balance each month.

By: Ross G. Allen, CFP ®