How to Use My Credit Card Judiciously

Another neophyte question.

Last week I ordered my very first credit card. I normally wouldn’t own one of them but they do come in handy for some things and they’re the most convenient way to build up credit as well, so I went ahead and took one when the bank offered me one when I started a checking and savings account there.

It has a $2,000 credit limit and a 13.99% APR if that’s important.

I got it in the mail about four days ago and so far, it sits in my wallet, unused. I’ve heard the horror stories about the things and I know that it’s too easy to get sucked into debt so I’m a little leery about using it but what’s the point in owning the thing if it doesn’t get used? With that in mind, I was curious as to what people would suggest I use it for and what behaviours I should try to follow so as to not go overboard on it.

Any and all advice would be appreciated.

Always pay off your balance in full. Always.

To do otherwise is a slippery slope.

Sing it like you know it! Credit card debt is the worst possible quagmire to get yourself into short of dealing with loansharks. Charge nothing you can’t pay for at the end of the month.

Or, if you have a major purchase that you need to make, and know you won’t be able to pay it off in a month, make a plan for paying the large purchase off and stick to it.

For example, say you need to have a root canal done and it’s going to be $1500. First, pay as much of that as you can afford with cash. For the rest (imagine there’s $1000 left), pay no less than $300 a month, and charge nothing else until it’s paid off.

Never pay the bill late. If for some reason you can’t pay the whole thing off, pay the minimum + as much extra as you can. Charge nothing else until it’s paid off. As soon as you’re late with a payment, they can jack that interest rate up to ~20% or more - and they will do it.

DO use it for online purchases, if you make any, instead of a debit card. Someone fraudulently maxxing your credit card is MUCH easier to deal with than someone draining your checking account.

Don’t take cash advances from the credit card, unless it’s a huge emergency - the kind where you’re in jail and need to get out or the like. Those interest rates are insane.

Don’t carry it with you - leave it at home in a safe place. This will go a long, long way in keeping you from whipping it out for impulse purchases and/or meals.

I’ve been told that three or four times now and while I understand it cuts down on impulse buying, doesn’t it also hamstring you if you need it and your card is miles away, hidden in a book?

I’ve been told one of the best ways to use my credit card is to use it for neccesities like gas so that instead of paying cash you can get credit with your company. That makes sense but if I leave it at home all the time, I’m likely to forget it and not use it at all.

Sit down and come up with a realistic monthly budget. One that pays all your bills, other expenses (put in some for entertainment and other expenditures you know you’ll have), and some amount for savings. Be sure to estimate some for car repair, insurance, and other infrequent expenses that you know you’ll have at some point. Put the money aside in your savings account to cover those infrequent bills (don’t include them as your regular savings–they’re in addition to regular savings). Then, no matter how tempting, do not go over that budget.

If you keep to your budget, it shouldn’t matter how you pay for items (cash, credit card, etc.)–you should be able to pay off that credit card balance in full every month. Do pay it off each month. Don’t tempt yourself with the thought of letting the balance build a bit while you indulge yourself for a while.

That said, you may have an emergency where you’re faced with either depleting your savings entirely or charging the entire thing when you know you can’t pay it off the next month. I prefer to deplete my savings down to a certain minimum level (I need something in case I get laid off) and charging the rest. Then I sit down and adjust my budget so I get the credit card paid off in a few months (like 2 or 3). Those months can be painful–but not as painful as getting into long term credit card debt.

If you find you’re having those “emergencies” frequently (massive car repair one month, emergency travel to see sick family members a few months later, etc.) then you probably haven’t estimated your budget correctly. Sit down and adjust the budget so you have more in reserve.

It’s good that you have a $2000 limit. You probably can’t get into too much trouble with that. Keep it at that limit till you know whether or not you’re likely to succumb to temptation and go over your budget. Your credit card company may raise your limit without telling you. Don’t let them till you know you’re responsible with it. Also, for the first couple months, keep track of all expenditures you make by credit card. They’re easy to forget. Save the receipts and keep a running total so you’re not surprised when you get your bill.

Even if you don’t plan to use your card much, there are times (like renting a car or a hotel room) where you pretty much have to use a credit card. So don’t worry that it won’t get used!

I think my father put it best when he said there’s only one kind of debt worse than credit-card debt: a gambling debt. He’s right, too. The main difference is that the credit card companies don’t break your knees. They insidiously take everything else you have, though.

PAY IT OFF EVERY MONTH!!! That’s the golden rule. Take it from someone who knows. My sister is currently on her 2nd trip around the world, she has never had any debt. I, on the other hand, have CC debt and can’t possibly afford to have that much fun. I am working really hard to pay it off so I can do what I want, too.

Go ahead and use it, it will build your credit. But don’t ever spend more than you can pay in a realistic time frame. Also, if you miss even one payment, the rates often go up astronomically - up to 26%! (13.99% is not that good, either.)

It really depends on how flexible your budget is and how much shopping self-control you have. I’ve have a card since freshman year of college, always carried it with me, and never had a problem, mostly because I knew I had absolutely no money. It never encouraged made to me buy something that I wouldn’t have bought if I’d only had cash. For some people, though, a credit card is constant temptation and best left at home.

I would always take it with you when travelling, however, in case of emergencies.

Only do this if you don’t base your discretionary spending on your checking account balance. It’s easy to lose track of what you’ve put on the card once it becomes a habit, so you may go to the ATM and think you have more money than you do.

Oh yeah, and it should go without saying that you should pay it off every month. Paying it off every month means you’re getting an interest free loan from the credit card company, on top of the convenience and consumer protection. It’s a great deal, but only if you can avoid temptation.

Now, I’m going to chime in some good news. I’ve stuck to the advice above. Once or twice in the four years I’ve had a credit card (just the one), I failed to pay the full amount at the end of the month. I have paid on the close order of $25.00 in fees for these “loans,” but was careful and started with a no-monthly-fee card, so I’ve gotten off lightly in terms of the total amount I’ve given the credit card company for the privilege of borrowing from them.

I’ve been pretty diligent, and today the limit is ten times what it was when I started, and no monthly minimum payment[sup]1[/sup]. I carry a slightly larger balance at the end of each month (because now I have a fiancée whom I take out to dinner every week) but I haven’t paid a “late fee” in over a year. Even better: my bank has contacted me about some – as far as I can tell – very favorable terms for a car or house loan.

I’d leave it at home for the first year to avoid impulse purchases; some people even recommend freezing it in a block of ice so that you have to thaw it before you can make an impulse purchase. If, at the end of a year, you find you’ve done well, you can begin to carry it with you for regular purchases.

If you can stick to the one rule of always pay it off each month then you’ll be more than fine.
1 - if you said “But wait - the minimum payment is irrelevant!” then you’re ready to use a credit card.

I use my credit cards to collect reward points, not for the purpose of financing purchases (I have a line of credit for that).

I won’t use my credit cards unless I have enough cash to cover the purchase.

As I do all of my banking online, I’m able to monitor my credit card balances and I make numerous payments through the month. This might be looked at as turning down an interest free short term loan; I look at as a few missed pennies.

This way, I don’t receive a credit card statement at the end of the month that makes me flinch. Too easy to rationalize a partial payment that way.

As others have said. Don’t run a balance.

Just don’t fall into the “it’s only $20” trap.

You don’t need to use the card to refurnish your entire house or take a vacation in Bermuda in order to run up a huge debt. Buying $15 worth of stuff one day and $20 a couple days later–well, it might not seem like much at the time but it adds up fast.

(Been there, done that.)

Never use credit cards in an ATM machine or use those nifty little “checks” the credit card company includes with your statement. Cash advances generally have interest rates 10% or more above the rate used for purchases, and almost never have the grace period before interest starts accruing.

Don’t be late mailing in payment. I had a brain fart last month, and my credit card bill got sent out a few days late. This month, I had a $25 late fee, plus the interest on the previous month’s purchases. Useful info: Interest is calculated from the time of the purchase, not the end of the grace period. I was lucky that they didn’t bump my interest rate. You can ask the credit card company to shift the payment period if you work better doing all your bills at once; I’ve got mine set up to go out the last week of the month along with my rent and utilities.

As long as you budget to pay off the balance every month, credit cards are a nice convenience. Online shopping, establishments that don’t take checks, and pay-at-the-pump gas are the main places I use mine.

A credit card is great to have when you get slammed with car repair bills or a medical emergency or something similarly time sensitive. I’m glad I had one when my recent checkup of my car ended up costing me more than $1500. You’ll not be able to pay that off in one month, but if you’re diligent, you can pay it down fairly quickly. You may be eating a lot of ramen, but you won’t have to file for bankruptcy.

Those in the UK get added legal protection for purchases of items over £100.

All the advice given so far is very good. Don’t carry a balance if at all possible. Pay it off each and every month.
Having said that, if you want to establish some credit in your name, go ahead and break it in.
Buy something. Whatever you can afford. Be honest. A $20 book, or a $15 CD, whatever. Just one small thing. Then go home and take the card out of your wallet again. When your statement comes, pay it off.
Then buy something again the next month. Again, something small, that you can (truly) afford. Again, when your statement comes, pay it off.
That way you’ll get the credit history. Do that for several months, and you’ll get your limit bumped up by $500 or maybe even $1,000.
Having it sit unused isn’t doing anything for your credit report.

As everyone has righly pointed out, the key is paying in full each month. If you can do this no problem, you can get a Discover Card which gives you cash back (like 1% or something on your expenditures). I put everything I can on this card and always pay it off - food, gas, the basics I need anyway - then they pay me for using their services. Suckers!

I’m a big fan of my Discover Card - it’s the credit card I always pay in full, and I usually get free gift certificates to Borders with my cashback. That way I rarely have to pay for books. I also have another credit card that I don’t require myself to pay off entirely every single month, but I only use it for large purchases, and I must pay no less than $200 on it each month if I’ve got any sort of balance on it. (While I also ascribe to paying off your credit card bills every single month, sometimes it’s not always possible - i.e., if you just got laid off, an emergency comes up, that sort of thing.)

Whatever you do, make sure you pay your bills on time, and try not to buy something you really can’t afford. If there’s some sort of emergency and you must buy something you can’t immediately afford, make sure you make up a payment plan for yourself, AND STICK TO IT.

Actually, this reminds me – I just got a notice from Citibank saying that their dividend card would soon (September) be giving 5% back for groceries, gas and drug store purchases (everything else is 1%). I don’t know if it’s a limited time thing or not, but I’m putting all my groceries and gas on there while it’s going on. 5% is huge.