Credit cards are not only one of the best tools for financial management but also for savings if you use them wisely. Plenty of benefits you can avail of with the help of it, ranging from rewards and cashback to easy payment options. However, understanding the workings of credit cards is very crucial to avoid any type of debt and financial stress.
In this detailed guide, you will learn everything about credit cards including their types, pros and cons, and different strategies to maximize savings. Further, you will learn about responsible credit use, including debt management, budgeting, and fraud prevention. Are you ready to get started? Let’s begin…
Types of Credit Card
The first and foremost thing is to go with the right credit card option that truly meets your needs. Below are some common types:
i. Rewards Credit Card: These cards provide you with some reward points when you make any purchase using them. You can go with this option if you want to earn rewards on your daily purchases.
ii. Cashback Credit Card: It is another popular type of credit card. You can get some percentage of your spending back in cash with it.
iii. Low-Interest Credit Cards: As the name suggests, you can obtain these cards at an interest rate lower than that of the standard credit cards.
iv. Balance Transfer Credit Cards: You can use these cards to transfer high-interest debt from a card to a card with a lower interest rate which helps you to save some amount on interest charges. Therefore, you can consolidate your debt to some extent.
v. Secured Credit Cards: If you have limited credit history, this might be the most suitable option for you. It is the best starting point for those with no credit history.
What is a Credit Score?
A credit score is basically creditworthiness in a numeric form. It plays a crucial role in your financial life if you are availing it. Different factors like interest rates on loans and insurance premiums are directly linked with it.
If your credit score is good, you will have peace of mind. Otherwise, credit cards will become a headache for you. Therefore, you must keep it as good as you can.
The credit utilization ratio affects your credit score. This ratio can be calculated by dividing the amount of credit you have utilized by the total available credit. If this ratio is low, the credit score will be high. You can improve this ratio as follows:
· Pay your bills on time regularly.
· Higher credit limits are good for you until you increase your utilization ratio. Therefore, request for increase in credit limit if possible.
Save Money Using Credit Cards
Those who know how to use credit cards strategically can save hefty amounts. Below are some effective ways to save some amount:
· First of all, you should understand the reward structure of your card and optimize your spending for maximum benefit. You should go with a card that offers you some bonus points or cash back on your daily usage like groceries, travel, or dining. Try to spend on the categories that give you higher rewards so that you may earn a good amount.
· Don’t forget to track the expiration date of your card and reward balance. It’s better to use an online portal or mobile phone for monitoring your rewards.
· In this way, you will have to pay low-interest charges.
· If you travel frequently, you can avail different offers related to travel insurance, including baggage loss, trip cancellation, medical emergencies, etc. Similarly, you can access airport lounges, where you can relax before your flight.
· You can also take full advantage of different promotions and seasonal sales to maximize savings. Plus, some companies offer good discounts if you make a purchase online, you should avail of that offer to save some amount.
· Some credit cards offer fraud protection that helps you to recover different losses from unauthorized charges. If you find any fraudulent charges, you can contact your service provider. After investigation, they will reverse the charges.
· Price protection is another important aspect of a credit card. You will get reimbursement if the price of the item you purchased drops in price within a certain duration.
Responsible Use of Credit Card
Using credit cards responsibly gives you various benefits including saving money. It can be a great trouble for you if you behave irresponsibly. Below are some suggestions for responsible card usage:
· First and foremost, don’t forget to make your payments timely if you want to avoid damaging your credit score.
· Try to pay off your full balance on a monthly basis to prevent higher interest charges.
· Make it your habit to review your credit card statements regularly in order to check unauthorized charges.
· Use strong and unique passwords for your online accounts for their protection.
· Never click on any suspicious link you receive on your WhatsApp, Email, or any other account from any unknown senders to counter phishing scams.
· You should use a secure Wi-Fi connection instead of a public one when making sensitive transactions.
These are some of the primary requirements that you should follow to maximize your benefits.
Wrapping Up
Now you are familiar with the nuances of credit cards and can easily achieve your financial goals. Use it wisely. Avoid overspending and carrying a balance. Otherwise, it will lead you to significant debt that might be very difficult for you to pay off. If you don’t pay it off on time, the interest rates will go high and high and further create difficulties for you.
Avoid damaging your credit score. Otherwise, it will hinder you from getting loans, rent an apartment, and other benefits of a credit card. A damaged credit score can lead to financial stress and anxiety and may affect your overall well-being.
If you use credit cards strategically, it is a great opportunity for you to unlock financial freedom for you and to make your dreams come true.