How to Use a Credit Card Effectively

Understanding How to Use a Credit Card Responsibly Can Increase Your Credit Score!

The Ideal: Pay Your Credit Card Balance Each Month in Full and On Time

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At its core a credit card is simply a means of borrowing money.[1]  It’s also important to understand that a credit card is an exceptionally lousy means of borrowing money if you carry a balance.

Thus any credit card strategy in that doesn’t also involve paying off your balance in full and on time each month is, at best, of limited value and, at worst, downright stupid.  In short, how to use a credit card effectively entails you pay off your credit card balance each month then you can reap significant benefits from making purchases with a credit card.  However, if you consistently carry a balance from month to month then your credit card issuer is the one reaping the benefits (at your expense!).

For example, let’s say that you need to buy a plane ticket that costs $1,000.  You have both a credit card and $1,000 in the bank that you could use to make the purchase.  Should you pay in cash or use your credit card?[2]  If you use the cash then you can purchase the ticket outright without incurring any credit card debt.  Of course that’s good, but if you purchase the same $1,000 ticket with a credit card then you could automatically receive accidental death and dismemberment (“AD&D”) insurance for the flight as well as 1,000 bonus points or flight miles.[3]  Further, when your credit card statement comes the next month you can use the $1,000 you have in the bank to pay it off in full.  So either way you’ll end up with no credit card debt, but if you pay in cash you’ll get no special benefits whereas if you pay with a credit card you’ll get valuable insurance for the flight with credit card bonus points to boot.

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Second Prize: Make Purchases With a Credit Card as Long as You are Able to Steadily Reduce Your Debt

While it would of course be great to have your credit card fully paid off, what if you’re not in a position to do that right now?  Does that mean that you should lock your credit card away and only pay for things in cash until it’s fully paid off?  Not necessarily, because you can still benefit from making purchases with a credit card as long as you’re disciplined enough to continue to make meaningful progress towards paying down your credit card debt.  Understanding how to use a credit card effectively may vary from situation to situation.

Danger: How To Use A Credit Card Negatively By Using Rewards & Points as an Excuse to Pile on Unsustainable Debt

While it’s true that paying by credit card offers some unique advantages that paying with a check, a debit card or cash does not, I want to again emphasize that you should never use the benefits you receive from paying with a credit card as a means to rationalize making purchases you can’t afford.  For example, don’t talk yourself into buying a $1,000 plane ticket you can’t afford just because you’re going to get a few credit card bonus points or flight miles. If you choose to go down that road then it won’t take long before the deadly math behind credit card interest threatens to make financial bondage your destination.[4]  The Fidelity credit card has one of my favorite reward programs.

Summary: Credit Cards are Great Financial Tools if Used Correctly

There’s a myth among some that only those who are irresponsible, addicted to spending, or deeply in debt use credit cards on a regular basis.  While there are some who do indeed fall into one or more of those categories, it’s also true that those who understand the benefits of making purchases with credit cards and pay off their balances each month use credit cards to make practically every purchase they can.


[1]  See the article, “How Do Credit Cards Work”.

[2]  Note that “paying in cash” means paying with cash, a check or a debit card.

[3]  These are just examples of the types of benefits you could receive; individual credit card terms vary.

[4]  At 22% the interest on $1,000 of credit card debt for 1 month is about $18.33 (22% divided by 12 months x $1,000) whereas 1,000 bonus points can typically be redeemed for something valued at about $10 (equal to about 1 cent per bonus point).

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The fidelity credit card has a lot of great perks.  This includes a number of things from 401k improvements to the fidelity rewards card.

Improve Credit Now! Consolidate Student Loans

How To Consolidate Student Loans

Student loans are the type of financial aid offered by the government to qualified college students so as to help them with the rising costs of university education. Just like any other loans, student loans are also given with an interest rate.But the interest bestowed upon student loans is considerably low when compared to the regular ones. Most consolidate student loans with student grants. When done that way, part of the loan need not be repaid anymore. That alone is going to be a big help in the long run.

Aside from credit cards, there are also student loans in the form of aids and grants. To avail of it, students have to file a Free Application for Federal Student Aid or FAFSA. And even if it’s the government that sponsors FAFSA, a lot of private financial institutions use it to determine a particular student’s eligibility for grants, scholarships, loans, and similar programs they are offering.

The Nature of Student Credit

Research has it that more than eighty three percent of college students own one credit card at least. Recent studies reveal that around 54% of college freshmen have one. And that rate increases as students go up a year higher in their respective educational level. On the other hand, ninety percent of graduate students have around six credit cards each.

Given these data, the cases of student loans consolidation show that undergraduate college students owes more than $20,000 as they reach their final years of college. Furthermore, graduate students have student consolidation loans reaching as much as $50,000.

Much of this is because of the fact that it is fairly easy for college students to apply for credit cards and be approved for it. In fact, at the start of every semester, credit card companies set up several booths and tables inside schools and universities. They are even offering sign-up gift items such as water bottles and t-shirts to the applicants. Credit card companies are somehow lax on students because they believe that if and when credit problems arise among them, their parents are more than willing to intervene and bail them out with their defaulted student loans. And also, credit card companies sees students as an opportunity to produce a group of loyal customers in the future.

Continued Reading: Part 2 Credit Problems Faced By Students

Help With Debt Problems

Using a Plan To Help With Debt Problems

Getting help with debt problems is the first step on the road to becoming debt free. Regardless of your financial situation you can get out of debt if you are prepared to take the necessary and in some cases painfull steps required. For many people being in debt is a way of life and most people would struggle to make ends meet without their credit cards or in-store charge accounts. Mortgages and car payments are among some of the debts people consider necessary. However, planning for the future may require help with debt problems in the form of a debt reduction plan to have needless debt eliminated or greatly reduced to help through retirement. Additionally, as a family grows their spending increases until it reaches a peak and as the family begins to shrink with children leaving the nest, some of the spending habits do not shrink proportionately.

A good debt reduction plan can help bring spending back into alignment with the family size. For example, cell phones are one of the expenses that can be reduced as children leave the house and strike out on their own. They have had an extra line charged to you, but once gone have their own service and you may still be paying for a line not in use.

Credit Card Debt Problems

Get Help With Debt Problems When credit card bills come due, the minimum payment is typically low enough for people to afford, while allowing them to maintain a high balance. The company makes its income from the interest charged and with many cards the interest rate is so high that by making minimum payments, it can take years to pay off, even if no additional charges are made.

For a debt reduction plan to work, making higher than minimum payments will pay the balance down much faster. For those with little or no experience with budgets, there are many service organizations that can help with debt problems, often for no charge to help put together a debt reduction plan. Others, for minimal fees will also contact creditors and negotiate lower interest or settlements to reduce the overall amount of the debt to help make your debt reduction plan a reality. Understand, when card companies agree to lower accept lower balances the cards will need to returned and the card will be unusable. You will find many resources to help with debt problems on this site. Have a look around to find one that best suits you situation.