You probably know there is a right way to use credit cards (and also a wrong way). Do you do any of these?
Ever since my husband and I worked ourselves out of more than $35,000 in debt, I’ve not used credit cards. Not because I did not know how to use them, but honestly because I have the cash to pay for things. I turn down the store offers and toss the pre-approval letters into the recycling bin. I never give them a second thought. That all changed this weekend.
It all started when our dishwasher decided to die on us. We headed out (checkbook in hand) and expected to pick one up to replace the one which was worn out. While in the store, we were looking at other appliances and started talking about some issues we were starting to have with not only the stove, but also the refrigerator. Upon our research, we found that the store was offering a nice rebate if you purchased a select suite of appliances.
That was not our only reason for considering it, everything was marked down anywhere from 10 – 30% off. In fact, the refrigerator we looked at was 30% off and the range was 25% off. So, we decided to take the pre-emptive action to replace it all, before our hand was forced and we had to pay *GULP* — full price!
As we got ready to checkout, they asked us if we wanted to open a charge account. We spouted off no. He then said that we would save 10% off of our purchase. When looking at that amount of a purchase, 10% was a HUGE discount. So, we decided to do something we normally do not – we opened an account. As soon as the bill arrives in a couple of weeks, we will pay it in full (we could not do it instantly at the store as it was new and was not working at that time).
Our reasoning for doing this was our final purchase for four appliances — $3500. That makes it like getting a free range and microwave! This was such a large investment that we ended up making it work for us – using that credit we normally do not use.
That made me stop and think that there are right and wrong ways to use your credit cards. I thought I’d share these tips with you, to make sure you use credit the right way!
1. Pay them off – every month. The only way to use credit cards the right way is never carry a balance. If you can not afford to pay it off at the end of the month, you should never use them. This is an easy way to build up your credit score (if you are concerned with your number).
2. Do not have too many cards. If you have too many lines of credit open actually drops your credit rating. Each time you apply, you get a “hard inquiry” on your credit repot. Too many of these can raise red flags and can cause issues at that time you really need to get a loan (vehicle or home).
3. Cash back rewards. Many times, cards offer bonuses with purchases — such as cash back. Cards can pay you anywhere from 1% – 5% cash back on your purchases. This can be an easy way to turn your credit card into a way to make money. Again – just don’t carry a balance and pay it off every single month!
4. Possible warranties. Some cards actually offer extended warranties on those items you purchase. These replace those offers you get at the store to replace the warranty, which can save you some money. If you are not sure, check with your credit card company to learn more. Then, make sure you use the right card, at the right time!
5. Instant savings. These can be a good (and possibly bad) way to use a card. When you open a line of credit, you usually are offered instant savings (like what we did above). As long as you turn around and pay that balance off before the due date, you will avoid the interest rates. Remember that stores often charge 18% and more – which can really cost you a LOT of if you do not pay it off timely.
The biggest mistake people make with credit cards is just paying that minimum balance and then allowing the balance to grow, rather than disappear. If you use your cards the right way, you can make them work for you.