A credit card is one of the most commonly used financial tools. There are many benefits, ranging from convenience to the ability to earn reward points. Conversely, there are some risks, such as overspending or using your credit card on items that you don’t really need.
If you have any concerns about your credit card spending, now’s the time to take action. Waiting and hoping for the best is a risk you don’t want to take. It puts your entire financial picture at risk.
Here are five questions you can answer today to gain more clarity on your situation.
1. What types of purchases do you generally use a credit card for?
You need to know how you use your credit card to determine if you’re being responsible. Is it generally for necessary expenses, such as food and gas? Or do you find yourself making frivolous purchases?
2. What is your average monthly credit card balance?
Review your past three to six months of credit card statements for this information. From there, calculate your average monthly credit card balance at the end of the cycle. This gives you a clear idea of how much you’re using your credit card. You can then address the subject of whether or not you’re spending wisely.
3. Do you ever carry a balance from month to month?
There may be times when you need to carry a balance from one month to the next. When doing so, you’ll get hit with a finance charge. What is your interest rate? Are you comfortable paying interest on the balance you carry?
As a general rule of thumb, do your best to avoid carrying a balance. The best way is to keep your spending in check throughout the cycle.
4. What is the interest rate on carried balances?
Keep in mind that this may vary based on various factors. For example, your credit card account may have an adjustable rate. In this case, keep a close watch on the rate so that you know when it’s going up and down.
5. Do you receive reward points or cash back for credit card purchases?
If the answer is yes, it makes more sense to use your credit card as often as possible (as long as you don’t overspend). If the answer is no, consider making a change to a rewards or cash back credit card. You might as well get as much in return as possible when using your credit card.
Using a credit card can benefit you in many ways. Just make sure that you don’t abuse it. Use it responsibly at all times to ensure that it remains a powerful tool in your quest for a better financial life.
What are your thoughts on credit card spending? Do you know the answers to the questions above?