How Smart Are You With Credit Cards?

Personal finance is something you might call a hobby of mine. I’ve written on the subject here before, and on a couple of personal finance blogs that I own. One of the things that constantly gets batted back and forth between the experts in personal finance is the use of credit cards. There are some that will tell you that you shouldn’t use any credit cards at all. I happen to not be one of those. I think that credit cards can be a valuable tool. Emphasis on can. Used properly, a person can take advantage of the many available interest free credit cards to pay regular bills and then pay one large payment to pay the card off each month. It can help you with your budget by turning a handful of payments to different places into one payment to the card company.

There are other ways that you can use a credit card wisely without running up the debt. Obviously, the first step is to pay the thing off every month. Another step is finding a card that works for you. There are all kinds of cards that are available that have some sort of rewards system in place. They range from a simple percentage in cash back to much more complex point reward systems. Which one you might want to take advantage of will depend on your personal preferences. You might travel often, and make good use of a card with reward miles attached to it. I travel rarely, and have little to no use for miles. Instead, the main card that I use is an Amazon rewards card. I get a small points amount back for every purchase that is then tied to my Amazon account and used when I make purchases on Amazon. I read quite a bit, and buy plenty of stuff from Amazon, so this works out really well for me.

If you have credit card debt, like me, you’re not using your credit cards as wisely as you can. In the last several years, I’ve paid off a large portion of my credit card debt, but not all of it. I’m still working on the rest. One of the tools that I’ve used, with some success, are 0% balance transfer deals. Credit card companies make money on people like me (and probably you) who maintain balances on their credit cards. Each month, the earn that high interest rate on the remaining balance, while we whittle away at it with the small required payment. With the transfer offers, I’ve been able to maintain a 0% or low interest rate on my debt for over a year. Each time I’ve had to transfer the debt to a new card, I’ve paid a transfer fee of about 3%. Small price to pay for no interest for a year, if you ask me.

Of course, with anything, even the transfer deals can be hazardous. If you aren’t making any progress on paying the debt off, you’re really missing the boat. Used as a tool, the deals can be valuable in eliminating debt. Another pitfall of the deals can be that if you use too many of them, your credit rating can suffer. If you’re credit rating starts dropping, the new offers in the mail will stop coming, and there you are paying interest again.

Used properly, credit cards can be a tool. Building up rewards and cash back on cards you pay off every month can be a nice bonus at the end of the month. I still maintain that you should have as little credit card debt as possible in order to reduce the amount of interest you pay each month. Be smart with credit cards, and use them like a tool, and you’ll have much happier financial situations in your future.