But if you want to use credit in the right way, you don’t have to forsake credit cards altogether – although that’s not a bad strategy if you know you’re prone to abusing them. Instead, adopt a few simple habits that will let you enjoy the benefits of credit cards without the dangerous downsides. Follow these tips to make credit your best friend (instead of your mortal enemy): [This article was first published on The Simple Dollar in 2020. It was updated in February 2022.] Doing so may seem challenging, but this is the number one rule of using credit cards instead of letting them use you; it is truly the only way to avoid getting into credit card debt, and the only way to avoid paying interest on your purchases. (You don’t want to do that: A 20%-off sale means next to nothing after you get whacked with an 18% finance charge.) Meanwhile, paying all of your bills on time is a great way to keep your interest rates low and improve your credit score – and your overall credit health – over time. If you’re afraid you’ll forget and wind up missing your due date, set a reminder on your phone a few days beforehand or mark the date on your calendar. Another option: Adjust your online account settings so your bill is paid automatically on a certain day of the month through a direct bank draft. Checking in often – at least once a week – can help you stay on top of your spending so it never spirals beyond your control. If you notice yourself pushing the limits of what you can afford to pay back this month, stop using your card immediately until you get the balance paid down. Most credit cards offer powerful tools on their websites to track your spending – use them to your advantage. To stay on track, make sure to log on to your account once per week or every few days. Seeing your spending on your computer screen – in black and white – is sometimes the only way to let how much you’ve really spent sink in. Also: Capital One Platinum card review: Build positive credit Another strategy you can try: Use your card until you’ve spent a self-imposed limit, say $500, and then put your card away in a drawer until the beginning of the next month – or until you pay your bill in full. This can help you stay on budget and on top of your bill while allowing you to maintain a larger credit limit that might be useful in an emergency. The best way to do this is to save up for your purchase in cash first. Then, after you make the big purchase with your rewards credit card (and reap the rewards points), you’ll have the funds to pay it off right away. Another option: Use your card for big, important purchases, then pay it off over the course of a few months under a strict timeline – knowing that you’ll pay a bit in interest for the luxury of spreading out the payments. (That is, unless you can take advantage of an introductory 0% APR offer.) When you go this route, start with a plan and stick to it carefully. For example, if you plan to buy a new washer and dryer for $1,200 and then pay it off over three months, make sure you’re prepared to pay $400 a month for three straight months (plus some interest). Ask yourself, “Can I definitely keep up that pace?” It may also be helpful not to use your card on other purchases until you’ve paid off the washer and dryer in full. You don’t want that balance dogging you months after you thought it would be history. Of course, credit card rewards become a lot less lucrative when you’re paying interest on your purchases because you’re carrying a balance. To avoid that misstep, only pursue credit card rewards if you know for a fact that you can pay your balance in full. If you don’t know that for sure, those rewards probably won’t be worth it.
