06-27-2016 07:20 AM
Content provided courtesy of USAA.
Four in 10 Americans say they enjoy spending money more than saving it, according to a 2016 Gallup Poll. And 32% of those people say they will spend even if it means taking on more debt, especially credit card debt.
We all know that can lead to problems, but should you try to get by without a credit card at all?
That’s not necessary or even preferable, according to JJ Montanaro, a CERTIFIED FINANCIAL PLANNERTM professional at USAA.
“Credit cards are part of the fabric of our financial life and using them responsibly can help build a solid credit history and score,” Montanaro says. “Convenience, security, expense tracking and rewards programs all make credit cards a useful tool, if used prudently.”
Credit card benefits can outweigh the risks if you do these four things:
1. Choose your credit cards carefully. Select cards that offer a low interest rate, no annual fees and a desirable rewards program. Keep the lowest number of credit cards possible to avoid racking up multiple balances you can’t pay off each month.
2. Don’t carry a balance. Use credit cards to buy big-ticket items like appliances, particularly if your card offers a warranty above and beyond the coverage provided by the manufacturer or retail store. Just pay the balance off right away to avoid interest charges. “A lot of people believe they’ve got to carry a balance to boost their credit score; that’s just not the case,” Montanaro says.
3. Pay on time. If you do carry a balance, you can avoid being late with a payment by setting up automatic payments for at least the minimum amount and keeping the auto-pay feature turned on just in case.
4. Keep your spending in check. Attractive rewards programs lure consumers into charging more than they would otherwise. Paying your bills by credit card to rack up rewards points may be an option for the most disciplined consumers, says Montanaro. “But don’t let credit cards become a means to spend what you don’t have; that’s a recipe for disaster.”