Savvy consumers like UWSA readers know that there are certain things you have to know before accepting any credit card offer.
Basic aspects of your credit agreement such as APR, maintenance fees, and overage charges can make a huge impact on future dangers of credit card debt.
A little while ago, we discussed how to use your debit card to help accumulate savings for small purchases and medium-term goals.
This time, we’ll talk about maximizing benefits from your credit lines.
Credit Card Features, Positive and Negative
Consumer credit is still sluggish at this phase in the recovery, but signs of improvement are starting to show up. Under today’s conditions, accepting credit offers that involve maintenance fees, prohibitive penalties on overages, or a lack of fraud protection is just plain unnecessary. Even if you’re at an early stage in your credit history, or have minor credit card debt issues in your past, don’t feel as if you have to take any offer that comes along. Even in responsible hands, a bad credit card is like a ticking time bomb, and it could very well do more harm than good to your finances in the end.
On the other hand, if you understand your buying habits well, you can use a credit card with strong benefits to your advantage, in conjunction with good debt management habits. This is one place where having a budget is good; it allows you to see the “hidden” places where your money goes, allowing you to understand and work with your spending patterns. However, some things about your budget may be more obvious than others. For example, if you know that you like to take international trips every year or two, a credit card that offers frequent flyer miles or “points” for purchases may be valuable to you.
Choosing (And Using) Special Credit Offers
Let’s take the frequent flyer example a little further. If you know that you are going to get a bonus in terms of “miles” for every purchase, then you gain something whenever you use the card. Treat the credit card like cash and pay it off immediately after every purchase; do not use it to go outside your usual spending habits, and definitely do not accrue credit card balances! Instead, look for ordinary purchases that you would normally make with cash, use the credit card, and pay the balance diligently – as soon as you get back from the store. You do not gather debt, and you end up minimizing, at least a little, the impact of big purchases you know are in your future. The same strategy can be used with cards that have other kinds of benefits and bonuses; just do not overdo it!
Of course, you should examine any benefits agreement closely and make sure you understand it well. Get a good sense of how the “points”, “miles”, or whatever else you’re getting translate to purchases in real terms, what’s required, and how you can redeem them. It’s no good to you if you can only use your accumulated benefits once a year, for example, or if you lose them after an extremely short time if you don’t use them. It is also a bad move if the benefits require a certain minimum balance or any other tricky provisions about the way your credit card actually works. Card benefits should work to enhance your spending profile, not complicate it – and credit cards should benefit you first and the company second. Do not let credit card companies “sell” you otherwise!