How to use credit cards responsibly. This has to be one of the most controversial topics among financially-minded adults. In one camp there are people like Dave Ramsey who despise credit cards more than an Ohio State Buckeye despises a Michigan Wolverine. And in the other camp, there are people who use credit cards as a way of life like The Points Guy. While I’m not here to debate which camp is in the right (if, in fact, either camp is in the right), I am here to discuss the topic that probably led you to this article: how to use credit cards responsibly. Because if you decide to use credit cards, there is a responsible way to use them and an irresponsible way to use them. Let me show you how.
(1) Pay Off Your Credit Cards EVERY Month
The first step (and most important step) of how to use credit cards responsibly is to pay off your credit cards EVERY month.
Let me start by saying something:
If you have credit cards and do not pay them off every month, then you are not responsible enough to have them.
Ouch. I know that is a harsh stand to make, but it is true. Credit cards charge more interest than anything short of a loan shark and the rewards that you get from them will NEVER outweigh the interest charged.
But let me also say this:
If you are currently carrying a credit card balance, that is okay. Just do your best to pay it off ASAP. Get a side hustle, cut back on your spending, work some overtime, or do whatever you have to do to pay them off.
Don’t beat yourself up if you are carrying a credit card balance right now. For a long time I carried a credit card balance. I didn’t know how to use credit cards responsibly for a long time. (Longer than I would care to admit to be honest.)
You should never beat yourself up for mistakes you have made in the past. If you have overspent on credit cards and are carrying a balance, it’s okay! Just like if you have eaten unhealthily and not gone to the gym for a while and put on some weight. It’s okay! Don’t beat yourself up for the past version of you.
Just put in the work to be a better version of yourself tomorrow than you are today. 🙂
(2) Maintain a Low Credit Card Utilization Rate
If you don’t know what a credit card utilization rate is, then check out my article here. I go into more detail of how it is calculated and how it specifically affects your credit score.
It is extremely important that you maintain a credit utilization rate of LESS than 30% to responsibly use credit cards and preferably below 10% to maximize your credit score.
But really, if you followed step one in this article and are paying off your credit cards every month then your credit card utilization rate should be 0%. That would be the optimal way to use credit cards responsibly.That means that you are going to get all of the benefits of using credit cards like airline miles, cash back, discounts, etc. but pay none of the high interest rates that credit cards have.
You should also do your best to maintain a utilization rate of less than 30% on each individual card. Do your best not to max one card out while the others have $0 balances on them. If you do that, it will also have a negative impact on your credit score.
(3) Use Your Credit Card Rewards
This might seem like a stupid point but believe it or not, 31% of adults have NEVER used their credit card rewards! If you are wanting to use credit cards responsibly, then you MUST use the rewards that are given for them. If you don’t use the rewards, then you might as well use a debit card and not risk going into credit card debt.
Research what card(s) are best for you and have the rewards that you would like to take advantage of. Once you find the right card(s) then use them and redeem the rewards! You are already taking the risk of using the credit card in the first place, you might as well get the benefits as well.
Final Thoughts
It’s really as simple as that. Credit cards can be an excellent tool to get rewards for doing the things that you like. I use credit cards to travel. I rarely pay for travel expenses anymore. It’s really awesome. But it took me a while to learn how to use credit cards responsibly.
Save yourself some headache and just pay off your credit cards in full each month, which will help you maintain a low credit card utilization rate. And once you have done this enjoy the rewards that you are given! Travel the world, get some stuff on Amazon that you probably don’t need, or use the rewards for holiday gifts or something like that.
If you find yourself currently carrying a credit card balance, don’t sweat it too much. Just work to get yourself out of credit card debt. 🙂
You can do this.
I wouldn’t be writing these articles if I didn’t believe that you could do it.
If there is anything that I can do for you, please let me know in the comments.
Until next time!
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