The Smart Way to Make Credit Card Purchases

Posted on April 7, 2010
Filed Under Credit Cards

It sure has been an interesting time in the world of finance hasn’t it? Consumers have found out exactly where they stand with banks and credit card companies. And banks and other financial institutions have had their hands slapped a bit – though some would say not nearly hard enough.

Now it’s time to learn from this money meltdown and not repeat the mistakes of the past. Of course, as individual consumers we don’t have a great deal of control over what banks and savings and loans do, but we do have control over what choices we make. So it’s time to put some simple steps into place to help us guard our own finances. Let’s begin with credit card purchases.

Rule #1 – Plan ahead

Credit cards weren’t built to be used for your everyday purchases. Oh sure, they’re convenient and make everyday purchases easy, but that ease-of-use is also the source of their biggest risk. Because they’re so easy to use, it’s easy to lose track of your spending rates and limits. And when you lose track, you’re likely to overspend, or to miss a payment.

Rest assured, the credit card companies don’t lose track. They’ll keep a trained electronic eye on you and the minute you step over the line, wham, you’re hit with a fee or a higher interest rate (see The Dreaded Credit Card APR). Then you essentially become an indentured servant to the bank.

So if you want to use your credit card for purchases, plan ahead. Don’t use the card to buy the little things like your daily coffee or newspaper. Use it for the bigger things that take a little thought. Then make sure you understand how you’re going to pay for your purchases. The best scenario would be to pay off your balance every month but it’s not bad to pay it off in a few months as long as you’ve made that choice and can make the commitment stick. The bottom line is you should know you’re going to be pulling your credit card out of your wallet a good long time before you actually do.

Rule #2 – Build a Tracking Plan

It’s absolutely essential to keep track of every single credit card purchase you make – even online credit card purchases. That means carefully examining your monthly statement and probably creating an online account with your bank so you can view your transactions via computer any time you want to. If you don’t pay attention, you won’t know where you stand.

After all, you’re just one of three parties that affect your credit card account. First there are all the merchants you do business with. Some mistakes will happen with their transactions and you’ll want to know that right away. Then of course there’s the bank. It can make mistakes too. Lastly, there’s you. Don’t expect to memorize your running balance and keep it in your head.

Set up some kind of disciplined examination. Once in the morning with your coffee for instance would work well. Or you could check your account at a weekly bill-paying session. Just about anything will work if you stick to it. And just about anything can go wrong if you don’t. Look at it this way. If you pay attention and can avoid one or two penalty fees in a year, your time was well worth it.

Rule #3 – Limit the Number of Cards You Own

For safety sake, limit the number of cards you have. Sure it feels great to have a dozen credit cards but do you really use them? Most merchant cards for instance carry a high interest rate and are virtually unnecessary since you can buy the same things with a normal MasterCard or Visa. Gasoline credit cards are in the same boat. Do you really need more than one credit card?

Remember, when you limit the number of cards you have, you limit the number of annual fees you pay. You also limit the number of monthly statements you have to read and track. You also limit the number of checks you have to write each month. In this case having less really is more.

Just remember folks that too much credit card purchasing is a slippery slope. The short-lived convenience you realize from pulling out the plastic is more than countered by the burdens you might have to carry later on. Burdens like increased interest rates, fees, and increased minimum payments that can squeeze your budget dry (unlike prepaid debit cards). It’s really not worth the grief. So learn from the past and make your credit card purchases wisely.

 Comments