If savings is the foundation of wealth, bad debts are considered as the destroyer of wealth that can easily corrode you on your way to bankruptcy.
Nowadays, it is no surprise that credit cards are one of the best sources of bad debts. Almost anyone owns a credit card. It is easily accessible and provides convenience for cashless shopping. In the US, merchants now even have the option to use their iPad tablets to act as credit card readers through Shopify.
However, the problem starts if credit cards are not managed properly. Here are some tips to properly manage them so as to avoid a financial deep hole.
Understand the Terms
Every credit card has its own terms and conditions. You need to take note important details such as interest rate, the fees, credit limit, cut-off date, and the payment schedule or due date.
If you know how to maximize your cut-off date and your due date, you can use your credit card to buy something today, enjoy it or make money out of it for a month, and not have to pay for anything in cash.
If you make your purchases just after the cycle ends, you lengthen the ‘free float’ of your money and take the advantage of free money from your credit card. However, this is only applicable if you don’t run a balance on your credit cards, and if you pay your credit card bill on the due date.
For example, if you’re a photographer and you have a photography business, you can purchase a camera on a zero percent interest; use the camera to make money out of it on your business for a month, before you start paying for it. That’s virtually ‘free’ camera for a month.
Set Up Reminder
Your due date is one of the most important details that you should not miss in handling your credit card. It is when you should pay your debt. Failure to pay will enable them to charge you hefty interest rates.
Set up a reminder on your smartphone’s calendar app about your due date and the amount due as soon as you receive your billing statements. Most calendar app will allow you to set up an alarm and a note. Set it up to alarm at three days before your scheduled due date as most payment require three days before payment can be posted.
Think Twice or Thrice
Have you seen a nice pair of shoes, or a brand new jacket at the mall or while you’re shopping online? Don’t immediately buy the item the second you decide you can’t live without it. Don’t be an impulsive buyer.
A good rule of thumb is to give yourself 48 hours to really think it through. Maybe you’ll find that you don’t really need them after all, or that you’re able to find a less expensive alternative. If you have though it through and decide that you really need it, then you will feel much better about your decision.
Accumulate Reward Points
The credit card industry is becoming more and more competitive as the years go by. More freebies are being offered by credit card companies in order for them to keep growing their customer base. The key on taking advantage of these great deals is to read the fine print thoroughly and to play by the rules.
Avail of Merchant Discounts
Aside from reward points, credit cards also have discounts on selected partner merchants. Take advantage of these discounts whenever you use your credit card to shop at these participating merchants.
Negotiate for Annual Fee
If you constantly pay your credit card debts in full and in time, there’s no way credit card companies can gain business out of you except for annual fees. Try to negotiate for a reduced annual fee or better yet, a complete waiver of it. Some banks require you to spend a minimum amount using your credit card before they can totally waive your annual fee.
If you have a good credit history, then chances are they will agree for a waiver. Otherwise, if they don’t, then you can fire them by telling them that you are going to cancel your credit card with them and they will lose you as their client. Tell them you’d really like to keep their card, but if they can’t offer you better terms, you might be forced to switch into another credit card. They need you more than you need them.
While it is true that credit cards provide convenience on shopping, owning one comes with great responsibility of managing it properly.
As Robert Kiyosaki says, “Every time you owe someone a bad debt, you become an employee of their money. If you take out a thirty-year loan, you’ve become a thirty-year employee.”
Credit cards are known to be slave drivers. They will be your master and you will have to work hard just to pay them. Manage it properly. Always make sure to use it on expenses you can actually afford.