Credit card debt is a global problem that has led many to the poorhouse. However, with smart management, credit card debt can actually be a good thing. Let’s look at how to have smart credit card debt that will help your finances instead of hurt it. The premise may be a little odd to some people, but there is a way that you can use your credit cards to improve your credit rating and start investing in your future.
First, it is important to realize that credit cards are not free money– this is a problem that affects many when they get their cards for the first time. They run out and run up the balance until they are completely maxed out. The secondary problem with this is that many of these same people will make only the minimum payments on those cards. Suddenly, they are in way over their heads and it could take decades to pay off that debt, depending on how much it is.
Now, let’s take a look at how to use credit cards in the smart way:
1. Never max out your card.
Set a limit for yourself and don’t use the card limit as a guide. (How A Credit Card Limit Is Determined.) You should never have a credit card balance that is greater than three months of your current salary. Less is definitely more when it comes to credit cards. Strive to have a balance of less than $100 on most of your cards. Put aside a special card for emergencies and keep a bare minimum of debt on that card to keep it open.
2. Make monthly payments higher than the minimum amount.
This is an easy way to eat away at your debt and keep your credit rating high. Making regular payments is the best way to achieve a good credit rating, but making higher payments will also help. You should also putting a charge cap on your cards, and try to never spend more than you will be paying for the payment each month.
3. Use your credit cards to make good investments.
So many of us use our credit cards for frivolous items that will only lessen in value. If you took that same amount of money and used it to invest, you would actually start seeing a return. Suddenly, your credit cards are working for you and you’ve created a secondary income stream that can reduce your reliance on your paycheck. However, you should start small with your investments and make sure that the risks are as low as possible to avoid having this plan backfire.
4. Take advantage of low interest rates.
Look for credit cards that have a very low introductory rate and then a permanent rate that is fixed and low. These cards are much more beneficial. You need to also make sure that you make those monthly payments on time, since many cards do have an interest penalty if you are late. The lower the interest rate is, the lower your total amount of debt will be. Be sure to check out these credit card reviews at Credit Karma.