Ask the Experts: How Do I Use Credit Cards Strategically?

Smart ways to use credit so you don’t put your financial stability at risk.

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Dear Gary,

Now that I completed the program and eliminated all the debt that was causing me problems, I’d like to get back to using my credit cards as long as I can do it in a way that doesn’t set me up for another failure. Do you have any tips for using my cards in a way that won’t hurt my budget?

Jeannie S.
Omaha, NE

An expert answer from Gary Herman

Essentially, using credit cards correctly really involves a delicate balancing act for managing the debt incurred. If you take on too much debt on one billing cycle with daily purchases on a rewards credit card and can’t pay off the balance, then any rewards earned will be offset by high interest the creditor will add after once grace period ends at the end of that month.

So while you may earn 5% cash back on dining and 3% on gas, those rebates will be less than the interest that’s added if you pay off the debt slowly. The longer it takes to pay off, the more you’ll pay. When using credit strategically, these small daily purchases should be put on credit to earn the rewards, but then you MUST have money allocated in your budget to pay off the card balance in-full in that first billing cycle.

Swipe a credit card

Larger purchases can be put on credit so you can pay them off over time, but they should always be put on a credit card with the lowest interest rate possible – in other words, these purchases are usually not a good option on a rewards credit card. Ideally, purchases that take time to pay off should be put on a card with a 0% APR introductory interest rate. Then you just have to pay off the balance before that introductory period expires.

Of course, in order to qualify for 0% APR credit cards with the most attractive introductory periods (those that run up to 2 years), you need to have a good credit score. This may also be true of the best reward credit cards.

If your credit score is low because previous problems with debt, then you need to take baby steps to rebuild your credit before you can implement a strategy like the one described. You may need to use a secure credit card and make a small number of purchases on credit every month and then pay off the debt in-full. This will help you build a better credit score over time. Once your credit score is higher, you can use bigger and better cards strategically.

As long as you keep these kinds of things in mind when you use credit, your credit cards can be a key part of a healthy financial outlook. It’s only when you start to rely on credit to get by or lose control of managing the debt that you run the risk of causing financial distress. For more on how to use credit cards strategically, visit the Credit Cards 201 section of this website.

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