Like a double-edged sword, credit cards can be profitable if used correctly. On the other hand, this financial product can also be a weapon for you if you are not wise in using it. For those of you who just want to apply or just have a credit card, here’s a smart way to use a credit card for beginners.
Credit cards have many conveniences, one of which gives us the freedom to buy whatever we like at any time without having to worry about paying in cash.
For that reason, credit cards have earned a reputation as one of the most favored financial products for dealing with financial crises. Moreover, the discount promos that are offered often help save money and provide a better lifestyle.
Despite the benefits, credit cards can also be disastrous. Not infrequently, there are people who are unable to pay the bills will be caught in debt to be chased by the collector. In fact, cases of people committing suicide or running away because of credit card debt are common.
Therefore, for those of you who want to or have just had a credit card, it is very important to understand what you should and shouldn’t do when using this product.
The Smart Way to Use a Credit Card
When you use it wisely, credit cards will bring benefits. The following are tips and smart ways to use a credit card so you don’t get stuck in debt and high interest.
1. Set a limit and adjust it with savings and income
Don’t push yourself too hard when you shop on line or offline with a large nominal. In other words, match your income. Make sure first that at least your total savings have an amount that is more than your debt.
This is to anticipate if suddenly you don’t get income, you can still pay the bills. It looks fun to have a credit card, especially one with a large limit. However, it will be more dangerous if you can’t pay the credit card bill because you are pushing it too hard.
2. Manage the budget well
Use a credit card within a budget or budget You. The limit on a credit card does not mean to limit you from using a credit card or where you owe it.
Credit cards can provide benefits if you make them as a means of payment to facilitate transactions. So you may have debt as long as you don’t buy things beyond your means.
3. Pay your bills in full each month
The best way to use a credit card wisely to avoid debt is to pay your bills in full every month. To be able to do this, make sure you only shop according to your needs and abilities.
Just like Home Ownership Loans or Mortgages, credit cards are a tool for building credit and a tool for paying for goods or services in stages, so you shouldn’t use them as a way to buy things you don’t really need. Pay your bills on time
4. Pay your bills on time
In addition to paying your bills in full, make sure you pay your bills on time. Many banks allow you to set up automatic payments, so that money from your account can be withdrawn immediately before it is due each month.
If you are late paying, you can be charged interest which in the end makes it difficult for you. Consider paying off your bills in a month if it’s within the budget.
5. Maintain a low utilization ratio
Ideally, you want to pay your balance in full each month, but if that’s not possible, try to keep the utilization rate low.
Your utilization ratio is the credit percentage. Let’s say you have a credit limit of IDR 50 million. If you spend IDR 25 million using a credit card, you have a 50 percent utilization ratio.
A higher percentage than that can make it more difficult for you to pay off debt which will lower your credit score. As a suggestion, keep your utilization ratio below 30 percent.
6. Understand your credit card terms
Before you use a credit card, read the agreement to understand when you will be charged more, how the interest will be, and when it will increase. Choose a card that fits your spending habits and financial goals.
7. Do not have more than one credit card in a short time
Many banks offer credit cards with attractive promos and discounts. On the other hand, this can also make you accumulate debt.
Having more than one credit card will make it difficult for you to keep track of your bills, as well as making it difficult for you to manage spending and payment dates.
Plus, having a credit card beyond your means can also have a negative impact on your credit score and there’s a chance that your new application will be rejected if apply many cards in a few months.
8. Avoid cash withdrawals using your credit card at ATMs
Yes, credit cards give you the facility to withdraw cash from an ATM. But should you? Never do this unless you are in a desperate situation.
This is because taking cash using a credit card will attract interest of around 2.5 percent every month. So don’t treat your credit card like a debit card. If not paid on time interest will continue to increase.
9. Pay off high-interest bills first
One of the bad credits is also caused by excessively high interest. For that, you must prioritize paying high-interest bills.
Make a good financial plan and write down all your debts. Get rid of your high-interest debt first while continuing to pay your other bills.
10. Watch out for promotional offers
Banks generally attract customers (both old and new) with promotional offers and discounts. While this offer may seem lucrative, you should thoroughly understand the terms so you don’t fall into the trap of buying something you don’t need.
11. Do not use a credit card to shop in small quantities
Because of the convenience that credit cards offer, many people are used to making small purchases. If this becomes a habit without you realizing it, the debt will pile up even more.
Therefore, consider using a credit card only for large purchases and try to manage spending money properly.
12. Make the most of your gift
Credit cards usually offer rewards in the form of discounts, vouchersor free access to airport lounges. For that, use a credit card as well as possible so that you get the maximum benefit.
If you want to benefit from rewardsmake sure you pay your debt in full.
13. Immediately report lost or lost credit cards
If your credit card is lost or stolen, report it to the bank immediately. Banks use chips embedded in the credit card. This is so that your transactions are safer. Currently, banks have also encouraged credit card customers to use a PIN instead of a signature.
This is to prevent your credit card from being used by other parties. Therefore, immediately report to the bank if your card is lost so that you are not charged a bill that you did not do.
So, from the discussion about how to use a credit card above, if used wisely, a credit card can help you financially. Stick to these tips, and you’ll stay out of excess credit card debt.
One surefire tip to avoid debt is to have insurance. Insurance can be used as a saving habit with the aim of setting up an emergency fund if unwanted things happen in the future.
