We feature regular handy hints from John from Focus Your Money. This post talks about how to use credit cards to your advantage.
1. Choose the right credit card based on your spending habits.
Not all cards are equal and not all consumers behave the same way. Credit card companies understand this and hence offer different levels of rewards for different consumer behaviors. Before choosing a credit card, take some time to understand your spending habits. Where do you spend the bulk of you regular monthly budget? Groceries? Restaurants? Petrol and Transportation? Utilities? Once you understand where the majority of your monthly budget goes, choose the card that offers highest rewards for those expenditures.
2. Beware of store cards
In general, store cards are not your best friend. Opening store charge accounts will quite often lower your credit score, and what’s more, they can get and keep you in trouble. Most cards offer a one-time discount on purchases made when you open your account, with hopes that you will continue buying your favorite brands and pay high interest rates while you do it.
3. Pay off balance in full every month — non-negotiable
This is most obvious and, sadly, most ignored credit card rule. What every responsible credit card user understands is the fact that as long as you pay your balance in full every month, you remain in control. As soon as you start keeping a revolving balance, you give the control over to your credit card company. Revolving a balance means you are willingly paying a premium for the items you purchased using your card.
4. Don’t pay fees — unless it makes sense
There are many cards that require yearly, one-time fees and there are those that don’t. Before you dismiss a credit card solely based upon the yearly fee, I would encourage you to look at the rewards it offers. If the card gives a very high return on your purchases (especially your most common ones) calculate the returns minus the fee versus much lower reward points on a no-fee card.
5. Don’t forget to collect your rewards!
Obvious and hidden ones! Get in the habit of cashing in your reward points / cash back points on a regular basis. Have a plan for what you’ll do with those rewards. You may want to set it aside as a holiday fund or a Christmas fund. Maybe use it to make one extra yearly mortgage payment (if cash back is what your card offers). The point is to have a plan.
DISCLAIMER: Don’t spend money you wouldn’t otherwise have, and always pay your bill in full every month.
John has over 20 years’ experience looking at other people’s finances and importantly his own. His career has taken him from the big end of town working for Westpac Banking Corporation to his own franchise of the well-known coffee shop Michelle’s Patisserie. For more handy hints you can follow Focus Your Money on Facebook https://www.facebook.com/pages/Focus-Your-Money/136943199656466
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