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8 tips to make credit cards work for you, not against you

A credit card can be a valuable tool if you know how to use it properly, but using it irresponsibly can lead to a world of hurt.
Written by Holly Johnson, Contributor
Reviewed by Marc Wojno

Americans are amazing at using credit cards. According to the Federal Reserve, 74% of all purchases are made with credit. Unfortunately, we're not nearly as awesome at paying them off.

But if you want to use credit in the right way, you don't have to forsake credit cards altogether -- although that's not a bad strategy if you know you're prone to abusing them. Instead, adopt a few simple habits that will let you enjoy the benefits of credit cards without the dangerous downsides.

Follow these tips to make credit your best friend (instead of your mortal enemy):

Pay your bill in full every month

If you don't want to end up like the "average American," you need to stay out of credit card debt altogether. That means charging only what you can afford and paying your bill in full every month -- or even a few times a month if it helps you stay ahead of it.

Doing so may seem challenging, but this is the number one rule of using credit cards instead of letting them use you; it is truly the only way to avoid getting into credit card debt, and the only way to avoid paying interest on your purchases. (You don't want to do that: A 20%-off sale means next to nothing after you get whacked with an 18% finance charge.)

Never pay your bill late

In addition to paying your bill in full, you should also make sure you pay your bill on time. Most issuers charge an ugly fee -- often up to $39 -- for late payment. And since 35% of your credit score is based on your payment history, a missed payment can really ding your score.

Meanwhile, paying all of your bills on time is a great way to keep your interest rates low and improve your credit score -- and your overall credit health -- over time.

If you're afraid you'll forget and wind up missing your due date, set a reminder on your phone a few days beforehand or mark the date on your calendar. Another option: Adjust your online account settings so your bill is paid automatically on a certain day of the month through a direct bank draft.

Log on to your account

One reason credit is easier than cash to use and keep track of is that it creates a paper trail. When you use credit for all of your purchases, you don't have to keep receipts for things like grocery and gas purchases. Instead, you can just log on to your online account to see where you spent money, how much you spent, and how much you have left.

Checking in often -- at least once a week -- can help you stay on top of your spending so it never spirals beyond your control. If you notice yourself pushing the limits of what you can afford to pay back this month, stop using your card immediately until you get the balance paid down.

Most credit cards offer powerful tools on their websites to track your spending -- use them to your advantage.

Use your card as a compliment to your budget

If you're disciplined enough, you can use a credit card as a compliment to your budget. This strategy usually involves creating a written budget, then using your credit card for purchases until you work through your predetermined spending limits. This is a great way to earn rewards for purchases you'd be making anyway and to gain certain protections that only credit offers.

To stay on track, make sure to log on to your account once per week or every few days. Seeing your spending on your computer screen -- in black and white -- is sometimes the only way to let how much you've really spent sink in.

Know your limits

If you're worried that you might overspend, ask your credit card company to lower your credit limit to something you know you can manage on a monthly basis. They should be more than happy to oblige since they ultimately want you to pay the money back, and they can often make the credit limit change effective immediately. Not everyone wants a $10,000, $5,000 or even $3,000 limit on their cards, and that's okay.

Also: Capital One Platinum card review: Build positive credit

Another strategy you can try: Use your card until you've spent a self-imposed limit, say $500, and then put your card away in a drawer until the beginning of the next month -- or until you pay your bill in full. This can help you stay on budget and on top of your bill while allowing you to maintain a larger credit limit that might be useful in an emergency.

Only use your credit card for big purchases

A lot of people who get into credit card debt complain that it sneaks up on them, and for good reason. Sometimes it's those little $10 and $20 purchases that, over time, can take on a life of their own when left unchecked. If you want to avoid a "death by a thousand cuts," consider using your card just for big purchases instead.

The best way to do this is to save up for your purchase in cash first. Then, after you make the big purchase with your rewards credit card (and reap the rewards points), you'll have the funds to pay it off right away.

Another option: Use your card for big, important purchases, then pay it off over the course of a few months under a strict timeline -- knowing that you'll pay a bit in interest for the luxury of spreading out the payments. (That is, unless you can take advantage of an introductory 0% APR offer.)

When you go this route, start with a plan and stick to it carefully. For example, if you plan to buy a new washer and dryer for $1,200 and then pay it off over three months, make sure you're prepared to pay $400 a month for three straight months (plus some interest). Ask yourself, "Can I definitely keep up that pace?"

It may also be helpful not to use your card on other purchases until you've paid off the washer and dryer in full. You don't want that balance dogging you months after you thought it would be history.

Take advantage of all the rewards you can

Those who have the most to gain from credit cards are the people who master the art of credit card rewards. The best rewards credit cards offer an array of benefits -- including cashback, hotel loyalty points, and frequent flyer miles -- that can be earned just for using your card for regular expenses such as groceries or the cable bill.

Of course, credit card rewards become a lot less lucrative when you're paying interest on your purchases because you're carrying a balance. To avoid that misstep, only pursue credit card rewards if you know for a fact that you can pay your balance in full. If you don't know that for sure, those rewards probably won't be worth it.

Choose cards with extra perks

Even if you're not interested in credit card rewards per se, you can still leverage the benefits of a credit card. For example, some of the best credit cards out there offer perks such as free travel insurance, primary and secondary rental-car coverage, price protection, and extended warranties. If you pay your card in full every month, you can enjoy all of these perks for free.

In conclusion: Don't be average

Yep, the average American has trouble using credit cards. The thing is, that doesn't mean you have to follow in their footsteps. Instead of falling victim to the credit card trap, buck the trend and use credit responsibly. The perks and rewards are amazing, but only if you have the willpower and self-discipline to truly take advantage.

[This article was first published on The Simple Dollar in 2020. It was updated in February 2022.]

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