When someone is issued their first credit card, their spending power is greatly increased. And too often, this leads to the temptation of excessive spending, which could become a negative financial habit and spiral into a mountain of debt.
Thus, to achieve better financial stability, many people advocate getting rid of credit cards altogether. Yet there should be room to strike a proper balance between these extremes of debt and frugality — turning to a bankruptcy attorneyfor salvation on the one hand and only using cash to pay for everything on the other.
Here are some ways to realize the credit card’s potential as a financial tool and make it work to your advantage.
Create your spending limits
The biggest mistake many people make when using their first credit card is a simple one: thinking that the spending limit represents an addition to their financial capabilities. If you’re earning $3500 a month and get a card with a matching limit of $3500, you didn’t suddenly double your income. You’re still earning the same, but you now have the potential to spend twice as much as you can afford.
Without truly grasping this, anyone can fall into the trap of buying to enjoy satisfaction now and deal with the consequences later. The solution is equally simple: use your card, but work within a predetermined budget.
Know what you can afford, allocate your income to various expenses based on sensible priorities, and simply transpose that spending to your card instead of mindlessly going over the limit each month.
Make use of data tracking features
Once you’ve mastered the discipline of using a credit card without spending more than your budget, you can begin to take advantage of its ability to log data of your purchases unfailingly. This tracking power is one of the underrated features of a credit card. For those who are just starting to learn the ropes of personal financial management, it is a built-in, hassle-free platform that stores data regarding your purchases and can reveal a lot about your spending patterns.
Say goodbye to the days of stuffing your wallet full of every little receipt (and losing the occasional slip of paper by accident). If you stay within your budget, but cover as many purchases as possible with your card, you have all that information at a glance and can use it to improve your financial habits.
Enjoy the perks and rewards
Many credit cards offer varying rewards and perks. As you develop the skill of responsible spending, it becomes easier to maximize these bonuses and enjoy the upside of your credit card. Align your lifestyle and spending habits with those rewards. For instance, get hotel discounts or flyer miles if you love to travel or earn straight-up cash rebates if you tend to spend the most on necessities such as gas and groceries. Keep an eye out for retailers who may offer discounts for using their preferred card to make purchases online, especially if it’s something you’d be buying anyway.
Like any tool, there can be proper and improper ways of using a credit card. But there’s potential to wield it to your financial advantage. Using these tips, you can avoid common pitfalls of credit card use while enjoying the benefits.