Credit cards, using them correctly, are a great tool for your personal finances. Although you have to be careful, as they can be very dangerous when used in the wrong way. That’s why in this article, we share these 6 tips that will help you get the most out of it!
Tip # 1 : Choose the credit card that suits you best
There is no card that is better than the others in every way, which means that the best card will depend on what are the most important characteristics for you and your lifestyle. Some of the things that you will have to analyze and determine its importance are:
- The annuity : is the cost you pay annually for having the credit card. There are some cards that do not charge any annuity and others with which you will have to pay thousands of pesos, naturally the benefits and rewards also change.
- The benefits : most cards have different benefits and rewards programs. The important thing is to choose the one that has the benefits that you can really take advantage of.
- The interest rate : it is the cost, in percentage, of borrowing from the bank through your credit card (later we will tell you how to avoid paying them).
- The commissions : they are an amount of money that the credit card charges for some of the services, for example, for collection costs, cash withdrawal at ATMs, plastic replacement, etc. It is possible to avoid paying most commissions, it is only important to know about their existence and avoid doing the things that generate them.
Tip # 2 :inform yourself about the important dates
The first thing you should do once you receive your credit card is to inform yourself about the important dates of it. Know what they mean (we will explain it below) and on what day these important dates fall.
- The cut-off date is the day on which the bank counts the charges you generated during the (one month) period. Your statement will reach you a few days after this date and will tell you how much you owe to the bank and will give you a list of the expenses and payments you made during the month.
- The payment deadline is the most important of your credit card. This is the deadline you will have to pay the balance that was generated in the previous month and is regularly around 20 days after the cut-off date (that period of time is called the grace period ). The bank will start charging you interest for each day that you do not pay your debt as of the payment deadline.
Tip # 3 : Be a totalero
Once you know when to pay, it is important that you know how much to pay. The most advisable (by far) is to make the payment so as not to generate interest , that is, to be a totalero . This means that you would not pay any interest for the money you spent on your credit card. The interest rates on credit cards are very high (especially in Mexico), at Digitt we have met clients who paid up to 96% per year! With these rates it is very easy to fall into a vicious circle of debts, which is why we strongly advise trying to avoid paying interest at all costs.
Tip # 4 : Get out of your debt as soon as possible
If for some reason you are not a totalero and you already carry a debt on your credit card, get out of your debt as soon as possible . Here we recommend 4 steps to get out of your credit card debt. Tip: Digitt was specially designed to help people in your situation.
Another useful tip for non-totaleros (people who pay less than the payment for not generating interest) is that they make their payments to their credit card as soon as possible and do not wait until the last day. This is due to the interest calculated on the average daily balance of the period. Basically, before you make your payment, your average balance will be lower and you will be charged less in interest.
Always try to pay as much as possible and under no circumstances do you pay less than the minimum payment indicated on your statement. This will cause the bank to report negatively to the Credit Bureau and you will also start paying a moratorium interest rate that is usually much higher than the ordinary interest rate (which is already high in itself).
Tip # 5 : only spend what you can pay
Very related to the previous advice, is how much you can spend. It is very important to only spend what you can pay on your payment date. It is common and normal for people to feel tempted to acquire more and better things. As Dan Ariely, the famous professor of psychology at Duke University, points out, “temptations are what makes us borrow, and the reason why it is so difficult to get out [of that debt].” What we have to do then is to recognize the temptation and before making the purchase ask us if that expense is really necessary and if it will be worth it.
A useful way to realize if it is worth buying something is by analyzing its opportunity cost, by comparing it with something else you could buy with that money. For example, someone may think that instead of buying a $ 50 coffee every day, it is better to save that money and go on vacation at the end of the year, because comparing it is considered more valuable.
Tip # 6 :Take advantage of all the additional rewards and benefits of your card
Find out about all the benefits offered by your credit card. Be careful, take advantage of them, you are already paying them !. Some common benefits are point programs with which you can buy in different establishments (depending on the specific program of your card), travel insurance and access to exclusive rooms in airports.
Another benefit offered by some cards is the option to spend months without interest, although you have to be careful, because they can become a double-edged sword. The months without interest are good as long as you do not get out of control, the sum of many small biases can result in a large amount when paying.