How to Use a Reward Credit Card and Avoid Bad Debt

by Ann Wilson on April 3, 2012

Is it possible to use a credit card for spending and avoid bad debt at the same time? The answer is yes! Through strategic and responsible use of your credit card, you can control it according to your purpose as you steer clear from the debt trap.

If you own a credit card with rewards, you should even be more aware of how you use that plastic to your advantage. Indeed, a reward credit card can bring a lot of benefits for its holder but only if you know how to use it correctly.

In this article, we present essential tips on how you can use that credit card, particularly a reward credit card to pay bills while avoiding bad debt at the same time.

Buy only what you can afford. Do not forget that a credit card is a type of loan that you must pay off within a short term period. Even though you are not using cash to pay off a purchase, you are still spending real money on it. And if you fail to pay off your monthly credit card balance in full, you end up paying at least 14% to 20% more of the original amount of your purchase due to interest rate charges.

Therefore, it’s only wise to consider each purchase very carefully. Is it something you can afford? Can you pay it in full before your due date? Never purchase with your reward credit card on an impulse. Always weigh the pros and cons before swiping that plastic.

Stay within your credit card’s limit. You may want to rack up more points to your account through your purchases. But be careful that you don’t max out or exceed your credit card’s limit. It’s important to understand that how you use your credit line not only affects your repayment but your personal credit score as well.

Related Post: How to Make the Most Out of Your Credit Card Rewards

By keeping your charges minimal, you will be able to pay off your balance in full more easily. And because 30% of your final FICO score is based on credit utilization, you will also be doing yourself a favor if you keep your credit usage in control.

Review the terms and conditions. The best way to make the most out of a reward credit card is to understand the terms and conditions of your issuer. How does the reward system work? What kinds of purchases or transactions will earn you points?

Some of the best rewards credit card gives bonus points on selected types of transactions or purchases made from affiliate merchants so this is something you want to take a look at. If you’re going to shop, choosing a merchant that is affiliated with your reward credit card can win you bigger points for the same amount of purchase.

You should also be aware of the limits and restrictions of your reward credit card. For example, is there a limit on the number of points you can earn each month or within a year? Will your points expire if you fail to redeem your rewards on time? Read the fine to make sure that none of your hard-earned points will be wasted.

 

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