Updated: Jul 12, 2021
While extremely convenient, credit cards can be a very costly consumer product. Most people do not realize how expensive carrying a credit card in your wallet can be. Each year many big-spending credit card consumers will throw hundreds or even thousands of dollars out the window using credit cards. Even if you are not a big credit card spender, anyone can save hundreds of dollars each year with these 4 credit card tips.
Never Pay the Minimum Payment
Your credit card company usually makes sure you know that there is a minimum payment. Even if you owe thousands of dollars, your minimum payment can seem extremely low, sometimes only 3% of your total balance. However, what the credit card companies do not tell you is that if you have a large balance and only pay the minimum payment for the next few years you could cost yourself thousands of dollars in interest costs alone. In fact, that purchase from your local establishment for $50, over time will double. To avoid paying interest only and never really touching the principle, make sure you always pay more than just the minimum payment.
Transfer Your Balance to a Lower Interest Credit Card
Most Americans receive several credit card offers each month and most have some very enticing interest rate offers. For instance, many credit card offers will transfer your existing high-interest rate credit card balances for free, to the new card and allow you to choose either zero percent interest for 6 months or a very low interest rate for a specific period of time. If you have a high balance in which you pay hundreds of dollars each year on interest payments, in many cases it is in your best interest to accept these offers and enjoy zero or low interest for the next 6 months to a year. But remember, having many credit cards will lower your credit score. So, cut up and send back the old cards.
Use a Debit Card Instead of a Credit Card
It is not a surprise that we use credit cards out of habit. But why use something that is so expensive when we have no need to do so. We can easily pay for that meal or fill up our car with gas with our debit card and not pay any interest. Debit cards are just as convenient as credit cards and usually accepted everywhere credit is. Use your debit card to avoid high-interest fees in the long run and you can literally save hundreds in interest fees each year. This will save you the most over the course of your life. It is always better to pay for things in cash, even big-ticket items.
Best Option: Always use a Debit Card or pay Cash
From my perspective, and I can not emphasize this enough, learn to discipline yourself to buy things in cash. You will thank me when you are ready to retire. Get yourself on a budget. Understand where ALL your money is going, and I mean every last penny. Especially if you are deep in debt. Once you are comfortable living on a budget set a goal to save 4 to 6 months of living expenses to have as your emergency fund. You will thank me again. Everyone will face challenges in life and this emergency fund will keep you afloat during some difficult times.
Once the emergency fund is in place, set another goal to set money aside for a new car or even a house. If you can tough it out for 5 to 10 years you will have enough to put a big down payment on your new purchase or you may even have enough to buy your big-ticket purchase outright. Then set your sights on saving for retirement. Put as much as you can in your 401k or IRA. Do this until retirement and you will be set. I recommend having a professional investment firm invest your money in a well-diversified portfolio of mutual funds that hold other mutual funds. I will shout this from the rooftops, you will not outperform a professional investment firm. You do not have the time or resources to compete with them. This will help you ride out the ups and downs of the market over the rest of your working life in a safe and secure way. You will be grateful and full of hope when you finally retire. You can do this!