How to use a credit card and not to get into debt

How to use a credit card and not to get into debt

1. Read the contract carefully when signing

This is the most important advice when you have to sign any papers. Everyone has heard it a million times, but for some reason many people still hope for a miracle and sign documents without looking.

Therefore it is worth repeating: carefully read the contract. Pay special attention to the grace period, restrictions and credit card bonuses.

Grace Period

This is a grace period, when you do not pay any interest on your credit card. Depending on the bank and the type of card the grace period can be from a few days to a few months. And you should keep these periods in mind.

Credit card restrictions

Some transactions may be subject to interest or fees. These most commonly include ATM cash withdrawals and account-toaccount transfers.

Credit card bonuses

It happens that banks offer nice things for actively using borrowed funds. These can be miles, cashback or discounts from partners.

However, bonuses should be treated with caution. If you have a black belt in personal finance management, you can both benefit and stay out of debt. The rest of us better not get carried away.

2. Pay off debt before your grace period ends

You read the contract carefully and remember the end date of the grace period better than your own phone number. It’s just a matter of paying back your credit card before the grace period expires. If you do not, the bank will fine you for late payments and charge interest on the funds you have borrowed.

Typically, the interest rates on credit cards are not small: on average, they start at 20 percent. That’s why your debt will grow quite quickly. If you miss the moment, you will soon be spending all of your available funds to pay interest and will not be able to repay the loan itself.

Your global goal is to always pay back your debt on time and not overpay.

3. Don’t use your credit card to pay for everyday items.

If you don’t have enough money for food, rent and clothes, don’t rush to get a credit card. A card is only an illusion that you have more money. In reality it only allows you to transfer a portion of your income from next month to this month. So your future income will automatically be reduced by the amount you borrowed and will have to pay it back.

When you don’t have enough money for everyday things, it is worth working on managing your finances or trying to earn more money. Debt in your case is a quick and easy way to make things worse.

4. Use your credit card for insurance

The best way not to go broke on a credit card is not to use it. However, it is possible to have it in case of force majeure. For example, a credit card will come in handy if your refrigerator or stove breaks down, which you simply can’t do without. Or if you need expensive medicine.

Keep the card for necessary and important purchases, but don’t get carried away. Use it as a lifeline: it’s worth throwing to a drowning man. But if a person only goes into the water with it all the time, they will never learn to swim.

5. Use a credit card to save money

Some offers from stores, airlines, and travel agencies are staggeringly generous. But to get a huge discount, you have to pay now. That’s where a credit card comes in handy.

For example, you discover that your dream bike, which normally costs $1,000, is only on sale today for $300. You have the money for it, but it’s on deposit. And you don’t want to lose interest because of an early withdrawal. At the same time, you can save up the amount you want without damage in 1-2 months. But the offer is only valid for today.

In the end, the most advantageous option is to pay for the bike with a credit card and repay the bank during the grace period. That way you save 20,000 rubles and get the transport of your dreams.

6. Don’t withdraw cash from ATMs

Banks usually aren’t interested in you withdrawing cash from your card. The financial institution makes money on the transactions when you pay with your credit card.

That means if you withdraw cash, the bank will earn already on you and will take a fee. In addition, a visit to an ATM may result in a reduction of the grace period or an increase in interest. Look for all the additional terms in the contract.

In order not to pay too much, pay immediately with a credit card or look for a bank that does not limit cash withdrawals.

7. Repay your debt in amounts larger than the minimum payment

Every credit card has a minimum payment you must make in order to continue using your card. This is usually a fairly small amount, very slowly leading you to pay off your debt. And the longer you repay the loan, the more you spend on interest.

Pay the bank back the maximum amount you can afford to pay off your debt faster. You will save time and money.

8. Don’t pay for things you can’t afford with a credit card.

Make it a rule to only pay for things with your credit card that you would buy with your paycheck anyway. Moreover, it is desirable that in case of emergency you can quickly repay the debt from your savings.

9. Use bonuses properly

In some cases, a credit card doesn’t drive you into debt, but helps you save money. We are talking about a variety of bonuses: discounts, miles, and cashbacks.

The main secret to this credit card approach is to spend the money you already have on your debit card or in your wallet.

10. Remember, thats’s not your money.

The bank is not at all a kind fairy who has decided to shower you with money. It is a commercial institution that is trying to make money off you. Remember this whenever you take your credit card out of your pocket. Now you are spending someone else’s money, but you will have to pay back with your own.

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