Many people scramble to get credit cards nowadays because these make life easier. Imagine just swiping a piece of plastic and getting out of the store with your loot. However, many have also sworn off credit cards because this very convenient system of swiping for purchases has dug a hole for them–they have found themselves so deep in credit card debt. In actuality, a credit card is just a tool for us to use. Far more than just a convenient way to make purchases, credit cards can play a significant role in smart financial management. Below, let’s explore how credit cards can become your ally in smart financial management and in achieving financial stability and success.
Understanding How Your Credit Card Works
As with any tool, you have to use it in the right way to get the maximum benefits. It is the same with credit cards. It is safe to say that understanding how credit cards work more than just using them to swipe for purchases will enable us to fully appreciate their benefits.
For example, credit card bills state the purchases, the total, and the due date. But it also says, “minimum amount required.” Some people do not understand that the minimum amount required is just so your card can remain active. However, if you do not pay the whole amount by the due date, your balance will incur finance charges and interest, depending on prevailing rates. Charges can be exorbitant.
So if you think that you cannot pay the entire amount during the due date, it is best not to pursue the purchase. Unless, of course, you opt for the 0% interest installment plans. Find out more about it.
Ways How Credit Cards Can Help in Financial Management
Here are some ways how credit cards can help you in smart money management and help you achieve your life goals.
Building a Positive Credit History
A strong credit history is the foundation of a healthy financial profile. Regular and responsible use of a credit card can contribute to building a positive credit score. When you have a positive credit history, you get better interest rates on loans and other financial opportunities.
- Related: Working on Your Financial Goals
Budgeting Made Easy
Credit cards can simplify budgeting by consolidating your expenses into a single monthly statement. With online banking and mobile apps, tracking your spending becomes effortless. Categorize your family budget, set spending limits, and receive alerts when you’re approaching your budget thresholds. This level of control enhances your financial awareness and empowers you to make informed decisions. It boils down to a very simple yet crucial decision: shall I buy this now or not?
Cashback and Rewards Programs
Many credit cards offer cashback or rewards programs, turning everyday spending into tangible benefits. Whether it’s cash rebates, travel points, or discounts on purchases, these rewards can be used to maximize savings and therefore enhance your overall financial health.
For example, a Philippine card advertises that you can convert points into gift certificates from a popular mall chain. You can use the gift certificates for purchases in the dry goods section or the supermarket. A whole year’s credit card expense can sometimes afford a whole month’s grocery supplies plus some items from the department store.
Emergency Fund Alternative
While building an emergency fund for the family is essential, credit cards can also serve as a temporary safety net in unexpected situations. During emergencies, you can use your credit card as a downpayment or deposit in the hospital so that the patient can be admitted even without cash on hand. It can also be used to settle the hospital bill so that the patient can be released immediately. This allows you to address urgent hospitalization or medical needs while preserving your savings and your petty cash. Plus, you can also defer payments to a later date.
Note that you can also use your credit card is most procedures like ultrasound, X-Ray, or blood tests outside of the hospital.
Safer to Go Cashless
It seems that carrying around a lot of cash in your wallet or purse can attract unwarranted attention, even from people you know. Sometimes, you accidentally flash the contents of your wallet when paying for your purchases and the sight of cold cash can spark temptation from those with bad intentions. It is safer to carry less cash and some cards on your person. But still, protect your cards, as these can also be hacked or tampered with and used by scammers.
Interest-Free Grace Period
Most credit cards offer an interest-free grace period between the date of purchase and the due date. By paying off your balance in full within this period, you can avoid accruing interest charges. This feature can be advantageous for managing short-term expenses without incurring additional costs. If you are a small business owner, you can leverage this grace period and use your cash for additional capital.
If managed wisely, credit cards can be used to consolidate existing debts. Transferring high-interest balances to a credit card with a lower interest rate can save you money on finance charges. Moreover, it makes paying debits easier and faster, since you are only managing one creditor.
How Credit Cards Work Best Is Up to You
Credit cards are powerful financial tools when used responsibly. By understanding their features and incorporating them into your financial management strategy, you can use the cards to build a positive credit history, simplify budgeting, earn valuable rewards, and navigate unexpected financial challenges.
But remember, the key to getting the most benefits from your credit card lies in responsible use and staying informed about your financial habits. It is like a two-edged sword — it can help you embark on your journey toward financial freedom or it can bury you in debt. It’s your call.
How will you use your credit card?