How to Use a Credit Cards CORRECTLY?
If you are wondering how to use a credit card correctly, and you realized that you won’t find the answer with the banks, then you came to the right place.
The process is finally over and you got what you wanted, your first plastic. However, there’s one question that immediately comes to your mind: how to use a credit card correctly?
Because of the above, here we will give you an effective answer and, in addition, we will mention the main tips that, we assure you, will help you to make the best use of your plastic card.
First, what are credit cards for?
These little plastics were invented to avoid carrying cash, to be able to advance purchases and also to
to make purchases in advance and, in addition, to make them remotely, online or by phone, but, above all, they were invented to be able to pay for purchases in installments; that is, those charges that we can’t cover all at once.
But what is the reason for the bad reputation of credit cards?
We have noticed that this happens because users are not trained to understand how they work, since banks do not provide a user’s manual; for this reason, we have had to learn to use them by ear or by trial and error. Because of the above, banks have high profits for the mistakes we make.
To avoid this and start managing your plastic cards correctly, here are the 5 most common mistakes when using a credit card:
1. Paying the minimum payment as a habit:
When paying your card, the bank will offer you 3 options: the Minimum Payment, the No Interest Payment or some intermediate amount. For you to choose the minimum, the bank offers you to pay only 2.25% of what you owe, but by paying it and continuing to use your card, you will be creating a snowball.
This is because 70% of your payment is destined only to cover interest and the debt will take a long time to decrease, so use this option only in case of emergencies, and stop spending with the card until you recover.
2. Having more than 2 credit cards:
When we start with credit, we beg for our first plastic, but, after a while with it, we start getting offers. This is tempting; the problem is that even the most controlled person starts to get tripped up by having more than two cards.
Between different cut-off and payment dates, and credit limits that exceed several times your salary or income, it is very likely that you will end up living a mid-term crisis. If a bank makes you an offer and it’s a good one, you can take it, but make sure your current card is canceled. “Remember that no one needs more than two plastics”.
3. Stirring the supermarket with the furniture
This is a very common mistake, because, generally, users use the same card to pay for everyday things (groceries, gasoline, etc.) and installment purchases (furniture, travel, etc.), the issue is that, for the calculation of interest, the Average Daily Balance of these purchases is used, which means that, basically, you would pay interest for groceries or dinner several months ago until you cover the total balance of the card.
4. Pay in installments at your card’s regular rate.
Did you know that in the United States a person uses his or her credit card to pay in installments at an annual rate of 14%? While in Mexico the average is 40%. Fortunately, here we have interest-free months.
What you have to do here is to plan your purchases better and look for places where you can pay in installments; there are even cards that allow this without a promotion at any merchant.
The key is to never pay interest at your credit card’s regular rate.
5. Have cash available with your credit card:
During the life of Kardmatch we have heard many stories, including people who have come to dispose of cash from one card to pay another; this could be called the card user’s cardinal sin, why? Well, for starters, because the bank charges you a fee for withdrawing cash ranging from 5 to 10 percent.
On top of that, you will be paying interest from day one until you pay off the debt. Some institutions even have higher interest rates for cash withdrawals.
In addition, this can be taken negatively by your bank, since a customer who has cash on his credit card is more risky, because it sends a signal to the institution indicating liquidity problems. This can be detrimental to you, as the bank may assign you a higher rate.
How do I avoid making these two mistakes?
For this, we recommend using the two-card strategy. It is important that this card offers you rewards, but the most important thing is that, of everything you spend with the product, you must cover it at the end of the month, without pretexts. This way you will receive with the rewards an extra that you would not receive when paying in cash.
To the second card (card to pay in installments) you will charge large purchases, for which you do need help to finance (living room, appliances, etc.), and you will try to pay for them only at MSI. To choose the ideal plastic, you should make sure it is from a bank that frequently has access to these types of promotions.
With this strategy you will avoid mixing daily purchases with purchases for which you need financing, and you will have greater control over your budget.