Personal finance experts’ reason to avoid credit creep and staying debt-free, it’s essential to observe credit discipline. On average, Americans carry a credit card of a balance worth $6,194. However, with coronavirus pandemic, the average credit balance will increase. Possibly the coming months.
It is essential for one to plan for their credit use, to note how much balance they will remain with. Especially at this time of isolation and lockdown, one should try observing safe credit card use. Particularly since most have been suspended from their jobs. Safe credit card use will enable financial wellness during difficult economic times.
“The general rule is: Don’t use your credit card for anything that you can’t pay for in full when the bill is due,” Priya Malani said.
The rules of thumb.
Your monthly rent or mortgage payment.
As much as it seems like a shortcut to paying off bills, it is unwise to use credit cards to make handsome payments. Although they are accompanied by additional rewards points, there is always a 2% to 3% processing fee involved. Nevertheless, most people are often ignorant about the additional costs. Erin Lowry, the founder of Broke Millennial, tells CNBC Select that the extra fee charged could chip away the value one believes they are getting from rewards.
Hence even landlords should not charge their rentals on credit cards. This will send misinterpretations. Kara Stevens, the founder of The Frugal Feminister, says property tax should always be factored in one’s budget.
Although credit cards are efficient, it is only wise to use for rent and mortgage in the event of wanting to earn a bonus. It should be so only if the bonus outweighs processing fees. It is also best to pay off the debt before they charge your interests.
A large purchase that will wipe out a credit card.
It is always tempting to make large purchases, especially when accompanied by a bonus. However, expert’s advice it is essential to be sure if one can pay off the balance before making such purchases. This is because, where one cannot clear their debts, they risk losing their limits as the interest piles. Credit utilization rate is a significant factor, for it marks a good report.
Taxes
It is very possible to pay taxes using one’s credit card. However, it is not advisable. Unlike bank transactions, credit card payments are not free. Paying off taxes using a credit card may cause one to incur a processing fee with a percentage similar to the tax paid for. Depending on the payment processor, the fee can range from 1.87% to 3.93%.
Malani says it’s best to make payments with the IRS in case one owes them instead of using credit cards.
Medical bills.
Using credit cards to pay medical bills appears convenient. However, it is costly if one cannot pay off the full amount on the due date. The hospital charges don’t belong to a credit card, even if medic advice. It is important to set aside emergency stash to prevent unsafe use of credit cards such as unexpected medical bills.
The Chase SlateR Credit Card offers a 0% transfer fee. ie for persons interested in lowering the interest rate on medical debts. To get access to this card, one needs a good credit score as a qualification.
A series of small impulse splurges.
Like large purchases, small purchases can also set one in debt. For those who get points and rewards by charging dining, travel, and entertainment, it is wise to plan the payoff when the bill arrives.
Most people reason that impulse purchases are amazing since they don’t pay immediately. It feels like no debt exists. Despite them being easy to rationalize, they increase quickly. It reaches a point one is overwhelmed by the debt. Hence it is wise to avoid impulse purchases. Set aside cash for fun.
It is important to note one’s balance, to see how much they are spending. This helps control cash, preventing extravagant and unnecessary purchases. It is healthy to avoid debts.
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