Having a credit card can be a liberating feeling, especially if you’re new to the world of using consumer debt. It also comes with great responsibility, including the obligation to pay the credit card provider back.

Using your credit card wisely is a big step to securing your financial future and ensuring you don’t fall into a hole of indebtedness you will struggle to climb out of. A credit card can not only provide you with a means of making payments but it can come with other additional benefits we will outline below.

  • Build Your Credit Score. You may not feel a need to have a credit card or even be comfortable with using one but having a credit card comes with advantages. If you plan to secure a mortgage at some point in the future then having a credit card will help establish your credit rating for this future need. Lenders like to see a history of you managing debt well and doing it on a smaller balance like a card will be preferable for them ahead of committing larger sums in your direction.
  • Accumulate Points.  Most credit cards come with a points of frequent flyer system attached that can allow you to accumulate bonuses from your everyday spending. Why pay cash when you can pick up some additional benefits?
  • Deferred payment. Even when you pay your card on time using it will give you a window of repayment that an EFTPOS card or cash won’t allow. You can generally get up to 55 days of free credit depending on when you charge your account and your payment is due.
  • Track Spending. A credit card provides all your expenses in one easy to manage bill that can be checked and paid monthly.
  • Free Travel Insurance. Many credit card companies offer free travel insurance provided you book a specified dollar value of your holiday on the card. Some of these policies can be quite comprehensive but it pays to check the fine print before going ahead.

Of course, having a credit card doesn’t come without it’s risks and responsibilities. Here’s a few smart moves that will help you prevent your card from turning into a nightmare.

  • Pay it off every month. Lenders will encourage you to carry over your balance with offers of a minimum payment, but interest rates on credit cards can be expensive. Never charge more on your card then you can afford to pay each month. A credit card can be a double-edged sword if you’re not careful.
  • Clear spending limits that you don’t need.  It’s important you manage the credit limit of your card to help protect your credit rating. Too much credit limit will reduce the level of borrowings you can have when you seek a mortgage, not enough credit limit will concern the bank if you regularly spend up to your full limit. A rule of thumb is to not spend more than 30% of your available credit limit.
  • Consolidate your debt. If you do have a permanent balance owing on your card consider consolidating your debt into a more permanent loan product at a cheaper interest rate. Be careful not to run up your credit card balance again once it is cleared.

Understanding how your card works and how to manage it wisely is an important part of your cash flow management and your overall debt strategy. Make sure your card is working effectively for you and that you don’t finish up working just to finance it.

If you’re thinking about how you can get your debts under control, you may find it beneficial to talk with a financial advisor who can provide you with the knowledge and advice to make the right decisions.

Mynextadvice helps individuals connect to the best Advisors in just a few clicks.

The information in this article is general in nature and does not take into consideration your personal situation or circumstances. You should consider whether the information contained in this article is suitable to your needs and where appropriate, seek professional advice from a Financial Advisor or other finance professional.

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