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One Credit Card Rule Above All Else – Don’t Pay Interest!

Not surprisingly, credit cards are becoming increasingly available.  It seems everyone carries one or more pieces of spendable plastic in their wallets.  Roughly 173 million people carried cards in 2006 and that number is expected to grow to 181 million this year. There were about 1,488,000,000 cards in the United States in 2006, and the number is projected to reach 1,618,000,000 by the end of 2010. 51% of Americans with established credit carry two or more cards.  The average carrier hoists 4 around and one in seven Americans own 10 or more cards.  That’s a lot of plastic!

So, what can we make of this? Is this a sign of extravagant, careless spending or are these credit cards needed by Americans to get through their day to day purchases?   The majority of credit card holders use too much of their credit limits and only about 14% utilize the proper amounts of 30% – 50%.   If you’re using a large amount of your available credit, chances are you’re carrying a balance and that means plenty of money is leaving your pocket every month in the form of heavy interest.  There is a way to utilize all of the cards in your wallet without having to pay a mountain of interest each month.  The trick is in figuring out how to work the rewards system to your advantage.

Many cards offer rewards in the form of cash, travel, merchandise, or a combination thereof.  These cards are often offered in partnership with retailers, gas stations, or travel agencies and are typically designed with lucrative rewards programs to develop customer loyalty. You might earn 1 point, mile, or percent cash back for purchases at most retailers, but earn 5% on purchases at the retailer who issued the card.  Some retailers send their card carriers exclusive coupons or specials.  The rub lies in where your credit card company gets the cash to give away products. Generally, credit card companies subsidize rewards programs via higher interest rates on cards that offer rewards.  In other words, if you pay interest, you’re subsidizing your own rewards program. Luckily, there’s a specific, easy way to take advantage of rewards programs without getting gouged by a higher interest rate.

DON’T PAY INTEREST!

If you never carry a balance from month to month, you will never be charged a penny of interest.  Knowing this, it’s easy to tailor your spending habits to take advantage of rewards programs.  For small purchases you can afford to pay off immediately, use the card that will net you the most rewards.  Then, make sure the bill is paid in full when it arrives. This way, you pay no extra, and can receive anything from movie tickets, to electronics, cash, or airfare and hotel accommodations.  For larger purchases you don’t immediately have the money for, save up rather than buying on credit.  When it comes time that you have the cash available, pay for it using your credit card and reap the benefits without spending anything extra.

But again, this only works to the advantage of card carriers who don’t carry a balance from month to month. That brings us to the next important part of smart credit card spending:

Know the Interest Rates On All of Your Credit Cards

If you must make big purchases you won’t be able to pay down immediately, use the card with the lowest interest rate. Whether it’s the sudden need to spend huge amounts on a transmission, buy the big screen TV you’ve always wanted or unexpected travel expenses for a family emergency make sure purchases that will force you to carry a balance go on the card that won’t rack up massive amounts of interest.

Sadly, it’s the interest paying population that allows credit cards to be lucrative for the rest of us, so if everyone was of the same mindset on not paying interest, all rewards and offers would evaporate in a split second.  No matter what strategy you use when paying off you’re credit cards, make sure you’ve planned ahead and budget your money properly and sooner or later, you’ll wise up to the interest you can avoid.

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