How to Use a Credit Card Responsibly
It’s no secret that credit card debt is a problem for many millennials. In fact, the average credit card debt for Americans aged 18-29 is $2200, and Australia’s data reports similar numbers. While it can be tempting to splurge on that new outfit or fancy dinner, it’s important to remember that credit card debt is real debt that must be paid off. With that in mind, here are some Money101 tips for using a credit card responsibly and avoiding falling into debt.
1. Know Your Credit Score
Your credit score is a number that lenders use to determine your creditworthiness – in other words, it’s a measure of how likely you are to repay a loan. The higher your credit score, the lower the interest rate you’ll be offered on a loan. Conversely, the lower your score, the higher the interest rate you’ll be charged. That’s why it’s so important to know your credit score and understand what factors impact it. You can get your credit score for free from many websites.
2. Make Timely Payments
One of the biggest mistakes you can make with a credit card is paying your bill late. Not only will this result in late fees and increased interest charges, but it will also damage your credit score. When you’re trying to use your credit card responsibly, be sure to set up autopay so you never miss a payment.
3. Keep Your Balance Low
Another factor that impacts your credit score is your credit utilisation ratio – in other words, the amount of available credit you’re using at any given time. As a general rule of thumb, experts recommend keeping this ratio below 30%. So, if you have a credit limit of $1000, you should aim to keep your balance below $300 at all times. Keeping a low balance will also help you avoid paying interest on your purchases (more on that later).
4. Understand Interest Charges
Credit cards typically charge interest on any outstanding balances – that is, any balance that isn’t paid off in full each month. The annual percentage rate (APR) is the interest rate charged by your credit card issuer on an annual basis. For example, if your APR is 18%, you’ll be charged 18% interest on any outstanding balances each year. It’s important to understand how interest charges work because they can quickly add up and put you in debt if you’re not careful!
Take these tips on-board and you’ll be on the road to success
By following these simple tips, you can avoid falling into debt and begin building a solid foundation for financial success. Remember: knowledge is power when it comes to managing your money! If you take the time to educate yourself about personal finance basics like credit scores and interest rates, you’ll be well on your way to achieving your financial goals. Good luck!
