The average American adult carries over $5000 in consumer debt. This fact alone could be why credit cards carry a negative image. Carelessly using your credit cards can significantly damage your financial situation in many ways.

Reckless use of credit cards can leave you with a mountain of debt that will take years to pay off, accruing thousands of dollars in interest, making the money you borrow far more expensive, hindering your other financial goals. Your credit score may be damaged from this as well, making it far more difficult to obtain a mortgage, auto loan and any other type of financing.

Credit cards don’t have to be bad, they can actually drastically improve your financial situation. Learning and understanding the proper use of credit cards helps us avoid piles of consumer debt, and puts them to work for you.

The Basics

Try treating your credit card like a debit card, never use more than you can afford. Know the contents of your bank account so you don’t end up unable to afford  your balance at the end of the month.

Keep your balances low, just because you have a $5,000 credit limit does not mean it should be used. Keep low balances to boost your credit score, and keep your payments manageable.

Make your payments on time every time. Missing payments will result in late fees and can severely damage your credit score. To avoid late payments, set payment reminders for all of your bills. Better yet, if the funds are available, set auto pay on all of your accounts to make the minimum payment, you can always go back and pay more.

Only buy what you need, credit is not free money, so use your debit card or cash as much as possible, and keep your credit card balances low.

Rates

Understand a little credit card terminology to avoid costly mistakes. Annual percentage rate, or APR, is one of the most important terms to know. If you don’t pay the entire balance, your credit card company will charge you the APR on all or part of the remaining balance. If you bought something for $20 last month, it could end up costing you $25. If your card has an APR of 12%, you pay $12 for every $100 you charge if you don’t pay off the balance within the billing period.

You want the lowest APR possible, but don’t be tricked by promotional offers or introductory rates. Some cards offer very low introductory rates for a few months or a year, and increase them later, sometimes drastically.

Minimum Payments

Your credit card statements include a minimum payment amount. These are fluctuating payments depending on your balance. With auto pay, it is always best to select your minimum payments because a certain dollar amount could be more, but it could also be less than the minimum payment, resulting in late fees. Be sure to go back to your bills every month and pay more than the minimum. Minimum payments always appear much more manageable than the balance of your card, however, you must consider interest. Interest accrues on the unpaid portion of the balance and can add up quickly. If you continue to use your card while making minimum payments, you will never catch up and pay off your balance.

Rewards and Points

When you have a rewards card, you gain points for travel, cash back, and other goods or discounts. Sounds great right? However, many of these cards also come with annual fees. Usually you will pay for this fee during your first billing cycle, though some companies will waive the fee for the first year and add it in the second. Read the fine print, and remember not to charge just for points and rewards.

These points are available because of cardholders that use credit irresponsibly. The card companies profit off of the interest charged to those who don’t pay off balances.

The real way to take advantage of rewards and points, is to only charge expenses that you already planned for, and then pay the balances off. The moment you begin to charge more because of rewards is the moment these cards threaten your financial situation.

The Upside

When you charge on your card, the funds don’t immediately come out of your bank account, and you are not down any cash until you need to pay that bill. This can help prevent fraud, theft, and any mistakes that may show up on your statement. If you pay for something with cash, you may or may not be able to get that money back. You are always able to dispute a charge on your credit card statement.

They also provide you with the funds you need in an emergency situation where your bank account doesn’t have enough to get you through to the next paycheck.

Use Your Cards Wisely

There are some great advantages to using your credit cards properly. But be sure not to get out of control or this could lead to financial disaster. Don’t put yourself in a situation where you don’t have enough money to get by, and your credit score will leave you unable to obtain a loan.

Educate yourself, use credit cards responsibly, and track your spending, and credit cards can be a powerful financial tool.

CreditServices.com puts a high value on educating our customers. If you have found yourself unable to obtain the lending options that you desire, we can help. We can help you through the credit repair process and teach you what it will take to manage your credit accounts successfully for the rest of your life.