Top 5 Credit Card Budgeting Tips
When you ask people about how they use their credit cards, you are liable to get a lot of different answers. In many cases, cardholders will turn a bit red and admit that they have trouble managing their accounts and controlling their debt. Although volumes have been written about how to manage credit card accounts, the basics are not that complex.
Here are five of the top credit card budgeting tips that are words to live by:
1. Check you balances frequently. When it comes to making purchases, credit cards offer unparalleled security and convenience. In fact, it’s the nearly frictionless transaction of a credit card that allow cardholders to lose track of their spending so easily. But when the monthly statement arrives, many cardholders are shocked to see their balance.
For many years, cardholders could only learn their balance before their statement arrived if they called the card issuer. And even then, it would be a tedious process asking the representative to list the charges since the last statement. But now, all cardholders have to do is to log into their account online to see all of their current and pending charges. In addition, most card issuers offer a smartphone app that is even easier to use than their web site. By checking your balance frequently, you can see how much you are spending before it’s too late.
2. Don’t spend more money than you have. The defining feature of a credit card is that customers are extended a line of credit to spend money that they do not necessarily have. Yet it’s this feature that is the root cause of debt, as many cardholders use this feature to spend money they cannot pay back in a timely manner. At the same time, you can actually remove the “credit” feature from credit cards, by keeping your outstanding balance below the amount of your available funds. Then, the key is to pay each month’s statement balance in full and on-time. When you do this, your credit card becomes simply a method of payment, not a means of finance. Furthermore, you will avoid all interest charges and nver incur debt. Finally, you will still enjoy all of the convenience and security that credit cards offer, as well as the full value of their rewards and benefits.
3. Use automatic bill pay. Another problem that afflicts credit card users are late, or missing, payments. It can be easy to forget to make a credit card payment on-time, but the consequences can be costly late payment fees and penalty interest rates. The solution is the automatic payment features available to most credit card users. Cardholders can set these tools to pay their entire statement balance, their minimum payment, or any amount in between. These tools are remarkably easy to use, yet most cardholders don’t take advantage of this feature.
4. Know your statement closing date. For most credit card users, the most important date is their payment due date. But there is another date that you should be aware of: the date you statement closes. Charges made before this date appear on your next monthly statement, but charges made after this date will appear 30 days later on the following monthly statement. For those who pay their balance in full each month, making a charge after the statement closes will give them an additional month to pay. Even those who are carrying a balance will find that their minimum monthly payment is lower when they have fewer charges on their statement. In addition, most reward credit cards will award points and miles on, or shortly after, the statement closing date. By law, the payment due date must occur on the same day of the month, every month. Then, cardholders must count back by the number of days of their grace period, typically 21 or 25 days. Alternatively, cardholders can login to their account and find their next statement closing date.
5. Pay down your balance early and often. When you are struggling to pay off your credit card balance, there are two simple tricks that you can use to reduce your charges. First, make your payments as early as possible. Many cardholders mistakenly believe that there is no benefit to paying your statement before it is due. But actually, credit card interest is incurred based on your average daily balance. So making payments earlier will result in a lower average daily balance and lower interest charges. Likewise, there is no reason why you can’t make two or more monthly payments to further reduce your account’s average daily balance. For example, if you receive a pay check every two weeks, then you could make payments shortly after you are paid. Doing so will also reduce your average daily balance, and cut your interest charges.
By understanding these five top budgeting tips, you can use your credit cards more effectively than you might have thought possible.
About Jason Steele
Jason Steele is freelance journalist and an expert on the credit card industry. He contributes to several of the top personal finance sites, and his work is syndicated to mainstream outlets such as MSN Money, Yahoo! Finance, and Business Insider.