Back to week 3 of the “How to Manage” series! This week we will go over credit and credit cards. Yes, that wonderful piece of plastic that gives you the power to acquire your biggest dreams. Just make sure you pay them back.
With consumer credit card debt most likely reaching $4 Trillion this year in the U.S. according to the Federal Reserve, I want to share with you some of the best management strategies I’ve been able to use throughout the years. Oh, and by the way, that’s almost a third of the size of the $13 Trillion U.S. consumer spending in the economy. I know you must be thinking, “wow that’s a lot of debt”, and I don’t mean to scare you, I just want to show you the importance of being smart about credit.
1) Pay Every Month
So, what is credit anyway? Credit is basically the ability to borrow money with the promise that you will pay back at a later time. We don’t all work in good faith and need to make a living somehow you know. So, banks and credit unions added what they call “interest” to the amount you borrowed until you pay them back. The longer you take to pay back, the more interest is going to accumulate over the money you owe. Simple enough, right?
However, it’s not all bad times and sad faces. There is a way to avoid interest and it’s pretty simple if you manage your finances. This way is to pay back the money you owe every single month.And I don’t mean some months, or every other month, I mean “every” month. Don’t let your amount due roll over and don’t let the interest accumulate so that you can enjoy the most out of your healthy-debt lifestyle.
2) Learn Your Benefits
Now that we know what credit is and how to keep it healthy, let’s go over that wonderful piece of plastic. As scary as debt is, credit cards are your friends. They are not the friend that invites you to do drugs with them in a dark alley, they are the friend that invites you to study at the library. And just like the friend at the library, they expect you to do your work and study up on the material. Basically, do your homework, kids.
The trick is to look at your return on investment. If the card has an annual fee, you need to see if the rewards you get from the card are higher than the fee, then you are in good shape. For example, if the annual fee is $95 and you only earn $30 worth of rewards, then you may need another card. Another trick to look at is cash back versus points versus miles. Look at your lifestyle and select accordingly. The last trick is only in case of an emergency and it’s the interest rate. Since you will be paying your balance every month, this won’t affect you too much, but still make sure you get a competitive low interest in the card you choose. One of my favorite places to do my homework is CreditCards.com. They do a fantastic job making it user friendly and helping you find your match made in heaven.
3) Know the Difference
To round up your credit knowledge, I want to show you the difference between healthy credit and unhealthy credit. It’s basically the difference between having a salad and a burger for dinner. The burger will make you happy right away, but you might regret it later. A salad, on the other hand, is light on the body and highly nutritious. Credit works the same way. It’s ok to finance your purchases as long as you can afford them. Don’t go for the place that will cost you over 75% of your salary because you will not be able to pay for it. Don’t make purchases that are far from the amount of money you have in the bank. If you can’t pay it in cash, then you can’t afford it. It’s that simple. Don’t go to the burger credit and choose to stay lean with the salad credit. And no, dressing with vegetables is not a salad, I see you dressing users.
Remember, pay your credit card back every month, make the card work for you, and know what you can afford. You will be fine, just don’t let the wonderful piece of plastic lure you into over spending.