Recent statistics show that credit card debts reached £66.4 billion in 2023 in the UK, an 8% rise from the previous year. The US is also experiencing an absolute mountain of credit card debt – $1.079 trillion, to be exact. It’s clear from the numbers that managing credit card debts isn’t a skill most people excel at. But the good news is that you can easily learn effective credit card management once you know and understand the rudiments. Whether you just got your first credit card or have been using it for years, the following management tips can help you develop and improve your credit habits.
1. Make paying on time your number one priority
Your priority should always be to pay on time whenever you use your credit card, as that’s the only way you can build a positive payment history and improve your credit score. As a general rule, always avoid using your credit card if you cannot pay it back within 30 days. This simple move can positively impact almost every area of your financial life, especially when you need a cheap mortgage, a low-interest loan, or any other financial assistance. Failing to pay on time can attract a late payment fee and, even worse, damage your credit score. Remember that credit card companies always send reports about late payments to credit card bureaus, which reflects negatively on your payment history.
2. Regularly check your credit card statement
The next important step in good credit card management is to check your credit card statement as often as possible. These statements will show you all of your transactions, including your purchases, late fees, and interest charges. You’ll also find any other charges that may have been applied to your account. Checking and reviewing your credit card statements can do two main things for you. One, it keeps you informed about your spending habits and where you need to make changes. Two, it can help you detect information errors, fraudulent activities on your account, or unexplained charges you may not be aware of. This way, you can take the necessary corrective actions to prevent the negative consequences that could potentially result from these issues.
3. Learn to reconcile your bank statements also
But don’t just check your credit card statement; learn to reconcile your bank statements also. While the act of reconciliation itself may not directly impact your credit card score, it’s important for your financial health. But why is it important to reconcile your bank statements? Doing so allows you to compare your recorded transactions with those reported by the bank to ensure that they are accurate. Just like checking your credit card statement, you’ll also be able to identify if any discrepancies, errors, or unexplained charges have occurred. It’s worth mentioning that your bank statement and your credit card statements are not the same. The former typically gives you an overview of the transactions occurring in your bank account over a given period, while the latter specifies transactions made on your credit card.
4. Live within your means
You’ve probably heard it mentioned several times already – live within your means. One of the main reasons behind the mounting credit card debt issue is that most people fail to set limits on their spending. Understandably, having accessible ‘cash’ has made it easy for people to make purchases even when they’re short on funds. But lacking the financial discipline to spend within your limits will only drown you in a massive financial debt over time.
So, try to live within your means by making sure that you can afford whatever you buy, even when you purchase on credit. Also, you want to be able to afford yout loan payments. Try saving up before you buy anything with your credit card so you can pay off any balance.
5. Use the debt avalanche method
When you have a credit card debt, your top goal should be to clear it within 30 days. If you cannot pay the full amount immediately, try paying at least the minimum amount due on each card every month. But if you have extra cash, consider using the avalanche method to pay off your debts cheaper and faster.
For the uninitiated, the avalanche method allows you to pay the minimum amount due on all of your debts each month but pay extra on the account or card with the highest interest rate. In other words, this method focuses on paying the debt or loan with the highest interest rates first. Once this higher-interest debt is paid off, the money can go to the account with the next highest rate, and so on, until you finish clearing your debt.
6. Consider paying more than the minimum amount each month
Paying only the minimum amount due on your credit card can cover your fees, interest charges, and some percentage of your balance. While this may sound like a smart move, it’s not an effective credit card management strategy, as your balance may build up and accrue interest. But when you pay off your entire balance or more than the minimum amount each month, you can easily avoid paying interest altogether.
7. Choose and use the right cards
Today, there are thousands of credit card options available to choose from, but picking the right one suitable to your requirements is becoming even more daunting. Some people choose their credit cards solely on recommendations from their agents or friends, while others stick with the ones they get preapproval for – and both might not be ideal.
A better move is to shortlist the cards available to you and thoroughly compare them.
If it’s your first time with credit cards, it makes sense to start with a basic card offering consistent rewards across different shopping categories and giving you a lifetime of free usage. However, if you’ve gone past the basic level and need another credit card, know your requirements so you can determine which card will give you the best benefits. Also, don’t forget to check the merchant offers before swiping a new card, as using the right card at the right time can attract other benefits.