Using credit cards for your purchases can be a great decision, as rewards cards allow you to profit from spending that you would anyway. But credit cards are only a useful financial tool if you use them correctly – and unfortunately millions of Americans haven’t.
Indeed, recent research by North West Mutual shows that 61% of Americans with credit card debt would have changed the way they used their cards in the past. Here are the three big changes they would have made.
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1. Limit the use of credit cards
The most common change that Americans have reportedly made is to limit the use of credit cards to primarily cover necessities. More than half of those with credit card debt – 56% in total – said they would limit their card spending to the essentials, if given the chance.
This makes sense to some extent, as charging for luxuries or unnecessary purchases is a bad idea. You don’t want to end up paying interest on things you don’t need, especially when committing to ongoing monthly payments of principal and interest, which reduces the cash you have at your disposal. to come up.
Of course, the problem is that loading up on necessities isn’t really a good idea either if you’re going to have a credit card balance. By debiting your card for anything you don’t pay in full at the end of the month, you end up making everything you buy more expensive.
Instead of just moving on to billing the necessities, plan to charge what you want on your card – with the caveat that you have to pay the bill when the statement is due. Just make sure to narrow down your essentials and discretionary spending to an amount that you can repay entirely by living on a budget.
2. Understanding interest rates
Of those Americans in debt who wish they could change their past billing behavior, 37% wish they had better understood their interest rates. It also makes a lot of sense, as interest rates on credit cards are extremely high. That’s why it’s not a good idea to have a credit card balance if you can avoid it.
If you’re not happy with your current credit card interest rate, your best bet is to lower it. You may be able to do this by using a balance transfer card or by securing a low interest personal loan.
But if you avoid carrying a balance on your cards, your interest rate won’t matter since you won’t be paying interest anyway.
3. Waiting for a card
Finally, 23% of people with a balance wish they had waited to get a credit card until they really needed it. This too is understandable. If you’re tempted to use your card irresponsibly for luxury purchases, it makes sense to avoid that temptation by not having one.
Of course, the problem is that when you need credit card, you may not be able to apply for and get approved on time. And billing a card during a time of financial hardship will only make your situation worse in the future as you will incur debt that you will need to pay off.
Instead of waiting to get a card in an emergency, try to save an emergency fund so you don’t depend on credit when needed. That way, if you can’t use a card responsibly, you won’t need to get one at all.
And if you can make smart choices about using a card to charge only what you can pay in full, there is no reason to delay getting a card. You need to get the right rewards card ASAP, earn points, miles or cash back, and pay off all of your debt each month.