Credit cards are a convenient mode of payment today. They are accepted by a wide range of merchant establishments that operate in multiple formats. Moreover, with the introduction of credit card loyalty programs, customers are further encouraged to spend using their credit cards. Add to this the fact that a lot of private labels are also offering credit cards and loyalty programs, a customer is drawn to offers that are designed to promote spending with a particular card or brand in mind. In such a situation, you will find a lot of people burdened with debt, especially from credit card companies. As a smart spender, here are a few tips that you might already know or might find useful to avoid paying high interest rates and waste your hard-earned money trying to clear debts that you could have easily avoided.
1. Avoid minimum payments. Paying the minimum due on your credit card bill may sound the easiest option to both - keeping your card active and to avoid late fees. However, this will only ensure that just a portion of your outstanding balance is being paid off and you are being charged a high rate of interest on whatever is the balance on your account. Smart spenders will purchase items and pay it off when they get their bills or even before that. A simple way to ensure that your card is not contributing to a long term debt is to pay off at-least 50% of your outstanding each month.
2. Avoid late fees. Late fees, especially for private label credit cards, are pretty steep. Even for a balance of $5, the company could levy a late fee of $15 - $25! So, ensure that you pay your bills on or ahead of time. In case your due date falls at an inconvenient time, you can make sure that you pay your credit card bills in advance to avoid the late fee.
3. Use the free credit period wisely. A smart buyer will understand that any credit card will have a 'free credit' period of up to 50 days! For example, if your bill is generated on the 10th every month, and your due date falls on the 5th of the following month, any purchase you make after the 10th will be billed to you on the 10th of the next month and fall due on the 5th of the following month! Make sure that you pay off the purchase value during this time and enjoy the benefit of paying zero interest.
4. Consolidate your cards. In case you have more than three credit cards, you will always face the risk of overspending. Keep the number of credit cards that you use to the minimum. Avoid private label cards unless you have a business that resells items purchased from a cash and carry. If you frequent a type of store more often than others, you could keep one private label card. Choose the other two cards wisely to get maximum benefit. For example, if you are a frequent flyer, you could opt for a co-branded card with a bank that gives you the benefit of accumulating air miles from different airlines.
These four simple rules will help you use your credit card more wisely and to keep your debts at a manageable level.