Receiving your first credit card in the mail is an exciting time and marks one of the first steps towards adulthood and financial freedom. This small, colorful piece of plastic marks a massive milestone in many people’s lives.
Yet, it can also be a huge adjustment, and there is a fine line between using your credit card to build a solid financial future or racking up loads of debt that you struggle to repay for years. As the famous saying goes, with great power comes great responsibility.
Without sufficient preparation, credit card owners can quickly succumb to their spending habits or urges even if they know how credit cards work before getting one. Therefore, it is essential to build good habits from the start and have a vague understanding of how to handle a credit card responsibly before diving in headfirst. Before using your first credit card, here are some of our top tips for saving money and keeping yourself debt-free.
Pay Your Monthly Bill In Full Every Time
It may sound non-sensical to pay your bill in full when your credit card issuer only requires you to make a minimum monthly payment, but it can cost you more money over time. Only making the minimum payment each month can cause the interest on your balance to build up until you finally pay it off.
Since only a minor amount of your balance will be deducted, an amount of your repayment will also be applied to accrued interest. To avoid this, it is essential that you aim to pay your monthly bill in full each time so that interest cannot be applied to your repayment – as a result, you will save yourself more money and be able to reap some of the benefits that paying in full can provide.
By endeavoring to pay your monthly credit card bill in full every time, you can reap specific benefits like an improved credit score, a grace period on new purchases, easier to manage repayments, a plausible extension on your credit card limit, and much more.
To learn more about the dos and don’ts of paying your credit card, consider visiting the website of credit card payoff application manufacturers like Tally, who provide credit card users with a range of debt payoff and planning features.
Head to their website today and use Tally’s guide to learn more about when you should pay your credit card bill and the answers to frequently asked questions like ‘What happens if I pay my credit card early?’ and much more.
Don’t Use All Your Credit Limit
When you have access to a credit card, the temptation to max it out – otherwise known as charging up to your credit limit – can be strong, but it is crucial that you resist that urge. One of the most significant contributors to your credit score is how much of your credit limit you are using. Therefore, as you can imagine, the more of it you use, the more it will affect your credit score.
Generally, most financial advisors recommend that you do not exceed over 30% of your credit limit, if not lower. If you regularly go over this amount, then it can have a devastating effect on your credit score. Not to mention it can get you into the habit of spending more and more, which will ultimately lead to credit card debt that can be challenging to get out of once you start.
Make Your Payments Automatic
One of the best ways to prevent repercussions to your credit score is by making your monthly credit card bills automatic, as this saves you from the late fees you’ll incur if you fail to make a payment or forget to pay off your credit card bill. Providing that you have enough funds in your account, we recommend scheduling the payment as the total amount. If this is not possible, aim for the amount to be higher than the minimum payment set by your card issuer.
Since your credit card bill is scheduled for the same date each month, as will your automated payment if you schedule it, this will make it easier for you to remember when the funds are due. This works out what is to be deducted from your bank balance so you can ensure you always have enough in your account to cover the payment.
Automating your payments is essential for ensuring that you pay what is due on time since your payment history is another significant factor in ensuring that your credit score is good. This figure is what lenders or banks will use to determine whether you’ll be approved for loans etc. Therefore, it is crucial that you pay all your credit card bills on time so that your credit score doesn’t suffer.