Credit Cards: 5 Ways to Choose and Use Them Wisely

Our daily routines, including income flow and spending habits, have shifted as a result of the pandemic. As we learn how to manage this new way of living, it’s a good time to reevaluate how we juggle our finances and pay for everyday needs. If you find yourself reaching for your credit card, you’re not alone.  

The Experian 2020 Consumer Credit Review explains the average American carried a $5,313 balance on their credit cards in 2020. Here in Colorado, that number is a bit higher with the average credit card debt clocking in around $5,625.  

If you’re a new Colorado resident, you might already know that the cost of living here tends to be higher than in other areas of the country. Compared to the national average, the cost of energy, healthcare, food, housing, transportation and other living factors has climbed to 12.5% higher for those in Denver, 10.9% higher for Fort Collins dwellers and a whopping 28.9% higher for Boulder residents, according to Salary.com.  

No matter where you live, if you need a credit card, choosing the right type of credit card for your needs and spending habits is key. Your credit card should complement your spending style and ultimately benefit our financial health. 

All credit cards aren’t equal. Each carries a set of variables that impact their use and payments. A few key details to pay close attention to include rewards programs, interest rates, introductory offers, payment minimums, fees, fraud protection services, mobile wallet compatibility, customer service options and partnerships with retailers. You have to choose which card has the features that work best for you!  

Here are five ways to choose and use credit cards wisely.  

1. Stay informed about your credit card’s perks and processes. 

Rates and rewards on credit cards constantly change, so it’s a good idea to keep an eye on what your current cards and other comparable cards are offering. For example, if you use your card and pay it off every month, you probably want a rewards card. Decide which rewards are best for you (cash back, gift cards, discounts to retailers, etc.), and find the card that gives the best rewards in that category. Cash-back rewards are very popular. Some cards offer as little as 60 cents per point, and some give as much as $1 per point or more.   

 On the other hand, if you’re going to carry a balance, pay attention to the interest rate of the card. For balance carriers, this can result in huge savings. For example, if you have a $1,000 balance on a card with a 20% interest rate and make the minimum payment of $30 each month, it would take you 50 months to pay off the balance and cost you $471 in interest over that time period. In contrast, if you had the same $1,000 balance with a 9.99% interest rate, and you still only made the minimum payment, you would pay off your balance in 40 months and only pay $176 in interest over that time.  

2. Know how much you’ll spend with interest before you buy.  

If you’re going to purchase a product or service and can’t pay cash or pay off the charges on your card in full at the end of the month, calculate the total cost of the interest you’ll pay based on how much of a payment you can make. Do the math before you buy.   

Using the example in #1 above, let’s say you’re buying an item for $1,000 and know you can only make the minimum payment. Are you willing to pay the additional interest in total for that item you’ll accrue over time? This type of calculation can quickly put into perspective the true cost of financing a purchase using a credit card. It might be a reason to consider switching to a card that offers a lower interest rate to make purchases more affordable. It might also be a reason to hold off on making an unnecessary purchase or look for alternatives that are within your budget. 

3. Read the pricing and terms to understand the interest and fees associated with your credit card

Every credit card has fees, interest rates and requirements that must be disclosed and is generally a separate document available within an advertisement or application. If you’re considering a new credit card, or perhaps you already have a card but have never read the fine print, look at the credit card terms in detail.   

Most credit cards have different interest rates based on transaction types. For example, using your credit card for cash advances or balance transfers may result in a much higher interest rate or fee than if you use it for purchases.   

Your interest rate may increase if you have missed payments, and this could be on top of late payment fees. If you have late payments you should contact your credit card issuer to find out if your interest rate has or will be increased.  You can save a lot of money simply by understanding how your card works and all the factors that affect your rewards and interest rate.  

4. Protect your credit card information.

Security is a hot-button topic, especially for those who use their credit card to make frequent online purchases as we socially distance and shop from home more. Our credit card team here at Elevations Credit Union has a few recommendations:   

• Set up mobile wallets so you don’t have to handle cards in person or transmit your card information. This also reduces exposure to credit card skimmers or website compromise.   
• Never give out credit card details over the phone to someone who claims to be calling from your financial institution. Instead, contact the number on your card to follow up with any questions or concerns mentioned by the caller.  
• Review your credit card statement each month. If you see charges you don’t recognize, investigate them and contact your card provider for assistance.  
• Set up Card Alerts for your Elevations cards to monitor transactions and disable your card quickly and easily from your phone or computer.  

5. Build your credit profile using a credit card.

For college students and young professionals, using a credit card responsibly by making payments on time and keeping balances manageable helps build a solid credit history.   

Later, when lenders evaluate your qualification for a large loan like a car loan or a mortgage for your first home, credit reporting bureaus will share your financial history as a credit card holder.   

Our financial spending habits, income and needs are constantly evolving and changing. Credit cards may be able to help you manage your finances and improve your financial health for future purchases. If you’re interested in debt consolidation to make your monthly credit card payments more streamlined, read this post for a few options to get started.  

Have more questions about credit cards? Our team would love to help answer them. Contact us today by phone or online chat from the comfort of your home.