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1. Before applying for a new credit card, think about the purpose it will serve
Knowing your goals can not only help you find a credit card that is exactly right for you, but you can also avoid wasting time and money on a card that doesn’t meet your needs.
“I would encourage people to first find out what their goals are in buying a new credit card,” says Mermel. “If you like to travel and want to collect points for it, it makes sense to purchase a travel rewards card. First, think about what you are looking for and you will be able to find a card that suits you. “
Keep in mind that travel credit cards come with expensive annual fees, complicated rewards programs, and usually require great credit. So if you’re more interested in the cashback aspect of reward cards, there are simpler options.
If you don’t want to pay for your credit card, look for one with no annual fee, like the Citi® Double Cash Card or the Chase Freedom Unlimited® Card.
Even without an annual fee, you get good discounts with both cards. With the Citi Double Cash Card you can get 1% back on all eligible purchases and then an additional 1% when you pay your bill. The Chase Freedom Unlimited Card offers new cardholders 5% cashback on grocery purchases up to $ 12,000 in the first year, plus 5% cashback on travel, 3% cashback on food, and 1.5% cashback on all other purchases.
We analyzed 44 popular cash back credit cards with no annual fee: Here is our pick for 1st place
If you’re just starting to build up your bankroll, there are credit cards for you too. You may want to consider the Discover it® Secured Credit Card or the Petal® 2 Cash Back, No Fees Visa® Credit Card. Both cards offer cashback and have no annual fee.
We analyzed 27 popular credit cards for building your credit history: Here’s our pick for the # 1
2. Get in the habit of paying off your balance in full
If you don’t pay your bill in full every month, you can be burdened with high interest costs this can make it very difficult to get out of debt. The interest on your credit card is calculated based on your principal (also known as a balance) plus any accrued interest you already owe. So you pay interest pretty much on top of the interest if you have month-to-month credit and only make the minimum payment required.
If you don’t pay your credit card bill in full on time and every month, a strategic credit card offer – like spending a certain amount of money to earn bonus points – can become a costly mistake.
“Don’t make purchases on credit cards to earn Reward Points unless you pay your entire bill every month,” warns Harrison. “The interest charges will easily wipe out any bonuses you’ve received.”
3. Do not use your credit card as an emergency fund
Of course there are emergencies every now and then. But try not to reach for your credit card when they do.
If you use a credit card to cover emergency expenses, there will be interest on the balance if you cannot pay it in full. Interest charges make the emergency even more expensive. Also, if you have been stuck with payments for a long time, you can sometimes feel like you will never get out of debt again.
“If you use your credit card as an emergency fund and you can’t pay it off in full, you create what is known as a debt brake because people feel bad about these balances,” says Mermel.
Instead of relying on your credit card to cover unexpected expenses, save an emergency fund in a high-yield savings account. Experts usually recommend saving expenses for three to six months in the account for use in emergencies.
Marcus High Yield Online Savings Account and Ally Bank Online Savings Account both offer above-average APYs, so your money can earn interest and you can build a fully funded emergency account a little faster.
4. Use a credit card instead of a debit card whenever possible
Both experts agree that consumers should generally try to use a credit card instead of a debit card for purchases, as credit cards offer more protection that can be really useful.
For example, if someone steals your credit card information and uses it to make a large purchase (or even a series of small purchases), you can usually call your card issuer to report the fraudulent activity and have the charge (s) removed from you. Your card provider will usually deactivate the old credit card and send you a new one.
It gets a bit tricky with a debit card, however. If someone makes unauthorized transactions using your debit card number (without actually actually owning the card) you will not be liable for charges if you report them within 60 days of your next billing.
But if your debit card is lost or stolen, act quickly before anyone uses it. According to the Federal Trade Commission (FTC), you won’t be billed for reporting your stolen or lost debit card before a scammer can use it. If the loss is reported within two business days, you could be held responsible for fraudulent charges of up to $ 50. But if it has been more than two business days but less than 60, you could be responsible for up to $ 500 in unauthorized transactions. And if you report the loss more than 60 business days ago, you may be responsible for all charges.
“Credit cards provide additional protection, allow you to pay before you make a purchase, and allow you to earn reward points,” says Harrison.
However, Harrison also cautions that while credit cards can be a useful tool, people who typically buy more than they can actually afford should use cash or a debit card instead. Otherwise, they’ll be burdened with high interest charges, which could result in debt payments taking longer than someone who only spends what they can afford each month.
5. Carry two credit cards with you – a primary and a backup
Once you are confident that you are managing one credit card and using it responsibly, adding a second to your wallet might be a good idea.
“I usually recommend having two credit cards: a primary card and a backup card,” says Harrison. “I’ve gotten into situations where a card didn’t work and you don’t want to be stranded without another payment option.”
Plus, adding another line of credit can actually help improve your credit score as it can increase the total amount of your available credit and lower your loan utilization rate if you generally limit your spending to just one credit card. But again, you should only consider opening an additional credit card if you have already mastered the management of your credit card (s) and the monthly payments completely and on time.
Credit cards can be an exciting opportunity to improve your finances, especially when you use one with attractive perks like cashback and travel rewards. However, to really get the most out of your credit card, make sure that you manage it responsibly.
Knowing your goals for the new credit card can help ensure that you are not inundated with luxury perks that you are not really going to take advantage of.
Another big part of smart card management is knowing how much you can comfortably afford each month and making sure you are stopped spending. By following these simple tips, you can get the most out of your card.
Petal 2 Visa credit card issued by WebBank, FDIC member.
For prices and fees for the Discover it® Secured Credit Card, click on here
Note to editors: Opinions, analysis, reviews or recommendations expressed in this article are solely those of the Select editors and have not been reviewed, approved or otherwise endorsed by third parties.