Many finance experts have advised their followers to stay away from credit cards because they lead to debt. While this may be a good approach to fiscal responsibility, people are missing out on a credit card’s many benefits. If used responsibly, a credit card can actually save you money. Here are several ways how:
Pay off your balance every month
Your credit card provider makes money from interest whenever you decide not to pay your balance in full for that month. To never pay a single cent on interest, see to it that you always settle your credit card’s entire balance every month. If you can’t commit to doing this, then avoid getting a credit card; you’ll only end up spending more than you should.
Get a balance transfer
The credit card business is very competitive. To win over their competitors’ customers, lenders offer interest rates as low as zero per cent for balance transfers, which you should take advantage of if you want to pay off your credit card debt and save money in the process. In fact, others have been manipulating the system by getting balance transfers every six months.
Because of this, some lenders imposed caveats such as no interest-free days and normal interest rates for purchases. However, you can still get around this; don’t use the card until the balance is repaid in full, which is actually a great way to get out of debt quickly.
Opt for a low-rate card
If you think you can’t pay off your balance in full, don’t lose hope. Many credit card providers offer a low-rate
equivalent. The catch: it has higher annual fees and/or no reward points. If you get your hands on such a card, you’ll enjoy an interest rate of 11 to 13 per cent per annum. Some credit unions even offer cards with rates of only 10 per cent! The low rates would easily offset that that costly annual rate. It may not have rewards, but low-rate cards are still a great way to save money.
Take advantage of rewards
Most credit cards have a reward system in place which lets you earn points, travel miles, discounts, or rebates whenever you use the card. If you plan on getting one, make sure the rewards are something that you can fully take advantage of. For instance, if you travel often, your frequent flyer card would let you earn points, which you can use for free trips.
Always pay on time
Paying your credit card balance in full every month isn’t enough; you also need to pay your debt on time. If you’re late with your payments, several nasty repercussions will happen: you will be charged a fee, your interest rate will increase, and worst of all, your credit score will drop.
Avoid cash advances
To save money and avoid paying more than you have to, steer clear of cash advances. A cash advance comes with higher interest rates than a regular purchase (usually over 20 per cent p.a.), incurs a fee of up to four per cent of the amount borrowed, and have no grace period whatsoever. The interest is charged once the money comes out of the ATM.