How to Use a Credit Card and Manage Cash Flows Effectively

by John Stevenson on November 12, 2010

The old ‘right-to-bear-arms’ adage – ‘Guns don’t kill people; people kill people’ – applies to credit cards as well. It is not the card itself that causes problems but the person who uses it. Easy availability of credit tempts holders to make impulse purchases, which they end up regretting. There are several ways to manage your cash flows effectively and avoid overwhelming interest rates and other fees.

First off, you must use the bonus points collected on the card to buy only things that you need, such as groceries, gas, clothes, and household appliances. In this way, you save money as you have to get these items anyway and pay cash. And no, you don’t really need brand name baby shoes, pee pee tee pee, and a tummy tub for your little one.

Second, you should learn how to take advantage of the free credit period your credit card company offers. This period starts from the date of billing, not the date of purchase; so, you can time your purchases to the longest free period you can get. In this manner, you can get the longest possible free credit period every month, profiting from the interest on your savings deposit instead of using your saved-up money to make purchases.

Another aspect to consider is rewards points. If you charge a lot of purchases to the card, you get a variety of benefits in the form of rewards points. When these accumulate over a certain amount, you can spend them on flight tickets, household appliances, gift cards, hotel bookings, and more. If you buy fuel from a particular gas chain that has an agreement with your credit card company, you get returns after a certain period. The requirements, terms, and conditions vary from one company to another. Some companies require that you pay off the card in full every month in order to be eligible for rewards. 

Keep in mind that late payments are definitely not the way to go. The interest rate on defaults varies, but it is usually between 2 percent and 3.5 percent a month, which comes to 24 – 42 percent a year. Interest begins to accumulate from the date of purchase and piles up on all subsequent purchases because you cannot benefit from the grace period. If you are not sure you will be able to pay the bills on time, you should probably refrain from getting a credit card issued. Seeing the card as a way to get easy money is a totally wrong perception. Not only will you plummet into debt, your credit score will be affected as well, which will impact on your financial future adversely to the extent that it may determine the interest rate on loans you take out.

Take care never to exceed your credit limit. This will have negative consequences on you in view of the interest charges and your credit score. The best way to go about it is to use the card to pay utility bills, monthly rentals, gift expenses, gas, groceries, subscription expenses, and others of this sort. This way, the cash amounts you haven’t used will go toward other immediate needs or sit in the bank with interest. For example, you can charge an electrical appliance to the card and time the purchase date with view of the respective free credit period. Another benefit is that all credit card payments are recorded, and it is much easier for you to track your monthly expenses.

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