Credit Card Tactics – Part 1: How Not To Get Buried In Debt
I know a lot of people are wary of credit cards, I felt the same way myself at first. But after a while, I discovered it’s not so bad if you use it wisely. In fact, lately I’ve been optimizing the use of my credit card.
And in this series of posts, I’ll share everything I’ve learned and thought about.
If we all operate from knowledge rather than fear (or ignorance in some cases), there’s a lot we can take advantage of. My hope is for everyone who reads this series to start thinking a little differently about their use of money.
In this first part, we’ll discuss the most basic tactic: how not to get buried in credit card debt:
Always pay in full each month.
Once you can’t, lock the credit card away and don’t use it again until 1 month after you’ve paid off the balance on your card. This way, you’ll be forced to go on cash-basis for a month and get a feel for how much disposable income (i.e. spending money) you really have.
If you’re struggling to pay in full each month, or you find that it’s a little time-consuming or confusing to keep track of your spending, here’s a tip that will surely work: pay on the same day you spend (preferably online, for convenience).
Personally, that’s what I do myself. That way there’s no chance of me forgetting about a bill. I know money has time value, and it’s better to pay later, but the risk-reward scenario for that isn’t great. There’s very little interest or capital appreciation my money can get in one month, but the interest and/or finance charges are huge if I forget to pay.
Don’t swipe if you can’t pay it in full. This is especially useful for big-ticket purchases. Even if it’s on 0% installment, and your disposable income may cover it, it still might not be a good idea. For one, a surprise (but necessary) expense may come up. If that happens, you might be forced to cover the surprise expense and incur (huge!) finance charges on your credit card.
Don’t enroll your credit card on auto-pay facilities for any bill. If there’s an error on the bill, you might no be able to dispute it before your card gets debited. Besides, it’s better to manage your bills yourself to get a feel for how much you are spending.
Don’t use the cash advance “feature”. It’s not a feature, it’s really a trap. The interest rates are usurious, no matter which credit card you have.
Pay a few days before your due date. Though not common, sometimes depending on the timing, a payment transaction on the very last day might not make it through on time. The credit card company will not understand whatever excuse you give. Instead you’ll just get charged for the late payment (interest on the whole amount due, from what I understand; even if you just forgot to pay a 100 peso charge, but already paid the rest of the 2K due, for example).
Enroll you credit card for online banking. Aside form the convenience, it will enable you to easily and conveniently monitor your credit card account regularly. In case there are suspicious transactions, you can quickly dispute it and not be forced to pay first and get a rebate or reversal later. In extreme cases, you might even be paying off transactions you didn’t make without you knowing it.
That’s it for today. In the next part, we’ll discuss how to choose the right credit card for you.
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This article is part of a series:
- How Not To Get Buried In Credit Card Debt
- How to Choose The Right Credit Card For You
- How To Maximize Your Credit Card – without spending more!
- Credit Card: Points vs Rebates – Which is Better?
- 11 Useful Credit Cards That Can Help Your Budget