All of us should have at least one credit card. There will come a time when each of us wants to buy a car or a house or a boat, and for most of us that will require financing. Demonstrating the ability to responsibly use credit helps build up your credit score, and the higher your credit score, the less you will be paying in interest when you go to take out a loan.
Moreover, the convenience of using a credit card allows for swift transactions without the need to carry around a lot of cash. However, overspending on your card is inadvisable. These enchanting pieces of plastic can spur shopping sprees that mire us in debt. In our college culture, where purchases on plastic are king, there are several strategies for smarter swiping.
This first piece of advice is both the most common and the hardest to follow: pay off all of your balances in full before you are subject to any finance charges. Credit cards often charge exceptionally high interest rates on your unpaid balance, made even more egregious by the rate at which that interest is compounded. If you peruse the fine print on the back of your statement, more likely than not, you will see that your interest is compounded at a daily periodic rate, meaning that your unpaid balance grows exponentially each day. This makes the effective yearly interest you pay a few points higher than the (already high) listed rate. If you can follow this advice, credit cards can actually save you money on everything you buy.
You may ask, "How can credit cards save me money?" The answer: get a rewards card. Every dollar you spend earns points, and these points are redeemable for everything from cash and gift certificates, to merchandise and airline tickets. In most cases, your points are worth about 1% of what you spend (spend $5000 on your card, get $50 back), but in some cases, you can be earning points at a greatly increased promotional rate (what's more, there's often a bonus for applying). Additionally, rewards cards typically have much lower interest rates than your average credit card - so if you have to carry a balance, it's better to do it on a low-interest card that gives you a little something back for every dollar you spend. You earn points even if you don't pay a cent in interest.
It is a common myth that credit card companies hate people who pay off their balances in full. Sure, they are more than happy to turn a profit off of interest payments, but they actually prefer it when low-risk clients spend on their cards. Credit cards can afford to give you money back (via rewards) due to the simple fact that they are still making plenty of money, even if you pay off your balances in full.
Credit card companies generate revenue with every transaction processed on one of their cards. They do this by assessing a standard 3% transaction fee on every purchase a cardholder makes. Every swipe of that Visa sends 3% of the sale price into the coffers of the card company. As a walking revenue machine, you deserve a little bit of compensation.
When you're applying for your rewards card (or any type of card, for that matter) it makes sense to do so with your primary bank. For those of us who use debit cards (mine has been gathering dust in my wallet for years), a credit card from the bank with whom you do your checking can provide a much-needed cushion against overdrawing your account. College students account for a relatively substantial number of overdrafts. Setting up overdraft protection on your bank credit card allows it to pick up the slack in those rare instances when your balance guesstimate is a few dollars off, avoiding those costly overdraft fees.
From textbooks to groceries, to that smattering of minor indulgences, every dollar you can afford to spend works harder when it's put on a credit card. The more credit you (responsibly) use, the more swiftly you will build your credit history. Use your card for all of your purchasing needs and you will rack up points all the faster. Even if you have a debit card, it makes sense to spring for the rewards card and shelter yourself from overdraft fees. A little bit of responsible spending can turn a liability waiting to happen into another way to enrich your wallet just a little bit more.
Keep in mind, however, that a rewards card is not a license to spend. The money you save can be wiped out by finance charges if you don't spend responsibly. Spend within your means and these pointers will help you hold on to more of your hard-earned money.
