There are those who think that credit cards are an expensive way to buy goods because interest rates are high. It is true that rates are high, but the reality is that people can benefit from interest-free credit if they use their cards wisely, and that makes using them worthwhile. Here are a few tips on how you can save money using credit cards:
1. Clear your debt in full each month
Contrary to popular belief, interest is not applied at the time of purchase when you use credit cards. Interest is only added if you have a balance outstanding after each payment period. When the interest is applied, it is backdated to the date of purchase. By making sure you have a zero balance each month, you get your credit for free. You should set up automated payments to ensure you do not inadvertently carry a balance.
2. Avoid making cash withdrawals
Most credit cards will allow you to use ATMs to get cash, but you should never use them for this purpose. This is because you will always have to pay interest on cash withdrawals, regardless of whether you clear your balance at the next payment date. Always make sure you have a card from your bank that lets you withdraw your money without any charge.
3. Keep an eye on how much you spend
Even people who are astute enough to set up automated payments will end up with a balance if there is not enough money in their bank accounts to pay the credit card balance. The most common reason for this is that the card holder has spent more money than they realized. This is an easy mistake to make, and you need to guard against it.
When you buy goods with cash, you cannot overspend, since you are limited by the amount of cash you have on hand. Your spending on your credit card will also have a monthly limit, but that limit may be higher than the amount of money you have in your bank account. Your monthly spending should be governed by your available cash resources rather than by your credit card limit.
Keep track of your balance by taking note of each transaction and of your total expenditure in the current period. It is easy to do this by carrying an index card on which you write your transactions.
4. Be on the lookout for credit card deals
People tend to stick with the same credit card company when they are happy with the service they get. If they are diligent and pay off their balances each month, the fact that they pay no interest means they believe they have no incentive to switch to a different card.
However, credit card companies will often have special deals to attract new customers. These deals are rarely offered to existing customers. One of the most common deals offered is a refund of a percentage of what new customers spend using the card, perhaps 1 percent of their total expenditure, for example. These offers are often applicable for a fixed period, such as six or 12 months. This can result in significant savings for people who use their credit cards a lot, so it pays to look out for such opportunities.
5. Limit the number of credit cards you use
The more cards you have, the harder it is to keep track of your spending. Furthermore, you may be tempted to incur more debt than you should, simply because the line of credit is available. It is easier to discipline yourself when you have only a few cards to manage.
Another good reason for keeping fewer cards is the possibility that your credit score will be reduced if you have too many of them. This could make it difficult to obtain other forms of credit, or to switch to a different credit card.
Credit cards can be one of the most cost-effective ways of borrowing. It does take time and effort to make sure you manage your accounts properly, but that effort saves you money.
