Today I wanted to take a rather controversial stance and point out that credit cards are not that evil by listing some credit card usage tips that could benefit you.
How many readers did I lose with the title alone? Before you read on I want you guys to know that this article is meant for the more advanced readers of Studenomics when it comes to financial matters. Before reading this article I highly urge you to read the ultimate financial survival guide for new college students.
Pay off credit card in full
First and foremost you should never pay off your credit card after the due date. If you do you will of course be charged with interest. The interest is only the short term issue. The long term problem is that you will be charged interest on your interest over time and your debt could spiral out of control. Another issue is that late balance payments could come back to haunt you when you realize they have affected your credit rating. All responsible credit card usage starts off with always paying off your full balance. If you can’t do this then maybe a credit card is not for you.
Cover major purchases
When I go on vacation with a few people I pay for it with my credit card. Why? Because I have a cash back rewards credit card. On top of the cash back benefit when booking a vacation, it’s also important to note that most vacation retailers only accept credit cards. In fact you save money in terms of commission fees when you book online with your credit card. An important caveat is to only cover major purchases with your credit card when you already have the money saved and ready to transfer to your credit card balance.
Play the 0% game
Though you will be charged a balance transfer fee for moving your debt to a 0% balance transfer card (usually around 2.9%), you will be able to chip away at the amount you owe without paying additional interest for the length of the introductory offer. The onus is on you to make sure that you keep up with any interest rate changes.
Use your credit card for additional protection
Credit cards offer more buyer protection. When you purchase something with cash you receive less protection than someone that uses a credit card. Watch out and remember to follow the 6 important credit card rules for young people.
Setup automatic repayment
If you use your credit card to make any purchase then you should strive to pay off your full balance. The next step is to setup some sort of automated payment schedule. If you can’t automate your credit card repayment then the obvious solution is to do your own banking manually on the internet. As soon as I make a purchase with my credit card I usually go to my online banking account and transfer the funds from my regular checking account towards my credit card. This why I pay off my credit card right away and still manage to reap the benefits of cash back rewards.
Before you try to apply any of these benefits please look over the credit card fees that all 20 somethings should know about. If you agree with the credit card usage tips then let me know. If you disagree then I look forward to reading your opinion as well.