Debt is a serious financial issue for many Americans and credit cards are one of the biggest culprits. According to the U.S. Federal Reserve, the average American household credit card debt stands at $15,611.
With April kicking off Financial Literacy Month, these staggering numbers may prompt you to rethink your plastic-swiping ways. Before you cut up all your cards and vow to pay only cash, consider how credit cards can benefit you when used wisely. They offer a host of financial benefits including stronger credit rating, purchase protection and rewards.
To avoid going into debt, simply follow these eight tips for using credit cards wisely.
1. Stay protected. In wake of recent retail security breaches, consumers need to keep personal data safe. While cash is the best way to avoid fraud, credit cards are the next best thing. Debit cards are linked directly to your bank account giving thieves instant access to your cash funds while credit cards offer several layers of protection. You'll also benefit from extended warranties and return protection when paying with a credit card, giving you options if you find yourself unhappy with an unreturnable purchase.
2. Maximize rewards. Credit card companies have ramped up reward programs to provide cardholders with extra incentives to swipe including travel points, cash back and more. Maximize rewards by reading your card's policy and opt in when necessary. For example, my Bank of America card provides cash back for all purchases, and if I wait until after I've collected over $300 in rewards, they give me an extra 25 percent back! Use the Wallaby digital tool to help you determine which credit card will earn the most rewards for specific purchases.
3. Treat credit as debit. The prospect of rewards tempt some credit cardholders into spending more than they should or would to earn extra travel miles or gift cards. Avoid this trap by treating your credit card like a debit card. Meaning, you only charge what you have available in the bank. By doing so, you will be able to pay off your balance in full every month and enjoy rewards without the burden of interest fees.
4. Enjoy exclusive discounts. Credit card companies provide perks beyond the reward program. For example, Chase offers discounts at retail shops, restaurants, car rentals and more, with new offers becoming available every quarter. Other cards are partnering with retailers to offer exclusive savings on retail purchases. For example, you can find coupon codes at CouponSherpa.com specifically for VISA cardholders, like up to $60 off your purchase from New York & Company, or 20% off at 1-800-Flowers.
5. Automate payments. Setting up automatic payments for your monthly bills is a great way to stay on top of expenses while earning rewards. Some utility bills may charge a minimal credit card fee to process, but you may find the benefits outweigh the costs. While automating your payments and going paperless can help you stay on top of bills and manage finances smoothly, it's a quick way to overlook extra charges or mistakes in billing. Set up alerts to your email or via text message when a new bill is available so you can review it for potential mistakes before payment.
6. Simplify tax filing. I have a credit card that I only use for my vacation rental property and one I use solely for business purposes. This makes my life tremendously easier since I can categorize spending and expenses based on those separate accounts instead of fishing through one card to pull information. While it's ideal to use one card to maximize rewards, keeping accounts separate in these instances will help you manage your finances a little more smoothly. Use an app like Mint to link all your financial accounts in one place for even better money management.
7. Negotiate rates and fees. If you're facing late payment penalties or unexpected interest fees, you may be able to get those removed from your account. Loyal cardholders or those in good standing who regularly pay on time and retain low balances will have more bargaining power. Typically, customer service will extend a one-time courtesy to remove a late payment fee and may reverse an interest charge. While you're at it, find out if you're eligible for a lower APR. It doesn't hurt to ask and I've been recently successful in negotiating all three of these!
8. Keep a low balance. Maintaining a low balance will not only help you manage timely payments, but it also helps your credit score. "Credit card utilization rate" refers to the amount of money you charge on a monthly basis and is used to determine your creditworthiness. Those who keep their utilization percentage low typically have higher scores than those who max out their credit cards constantly. Don't close old accounts either, as the length of your credit history plays a part in your score, too.
ABOUT ANDREA WOROCH
Andrea Woroch is a consumer and money-saving expert for Kinoli Inc. From smart spending tips to personal finance advice, Andrea transforms everyday consumers into savvy shoppers. As a sought-after media source, she has been featured among such top news outlets as Good Morning America, Today, CNN, Dr. OZ, New York Times, MONEY Magazine, Huffington Post, Forbes and many more. For more information, visit AndreaWoroch.com or follow her on Twitter for daily savings advice and tips.