Getting your first credit card is an exciting experience. It’s a sign that you’re becoming financially independent and responsible. Credit cards provide you with a great way to build credit, earn rewards, and use them as a fallback before you can create your emergency fund.
We have all heard scary stories about credit cards, and as a first-time credit card users, you may be wondering how you can use the card wisely. Here are 10 professional tips for first-time credit card holders to help you navigate and avoid getting into debt.
9 Tips for Using Your First Credit Card
1. Create a budget and stick to it
It’s important to set and stick to a budget, even when using your credit card. This will help you avoid overspending and getting into debt. Once you have a budget, make sure you track your spending to stay within your limits.
People often get in over their heads when they use a credit card because they don’t keep track of their spending. Stick within your budget. Keep track of your purchases.
2. Set up automatic payments.
One of the best ways to avoid late payments is to set up automatic payments. This way, you will not forget to make your monthly payments and incur late-payment interest charges. They can also help you build your credit score over time. To set up automatic payments, simply log into your credit card account and navigate to the Payments tab. From there, you can enter your bank account information and set up a schedule for your payments.
It’s best to avoid carrying over the bill to avoid incurring interest. However, always make sure you pay the minimum amount.
3. Use as little as possible.
Keep your credit card balance as low as possible. You can use the limit during emergencies to prevent getting into more expensive debt.
Carrying a high balance on your credit card will impact your credit score. First, it increases your credit utilization ratio, which is the amount of your credit limit that you are using. Second, it shows lenders that you’re more likely to default on your debt, which can lead to higher interest rates and lower approval odds in the future.
So how low should you keep your credit card balance? As a general rule, you should try to keep it below 30% of your credit limit. This will leave room for emergencies while also ensuring you can pay the credit amounts every month.
4. Clear your credit card bill every month.
One way to save money is to make sure you pay off your credit card bill every month. This way, you will avoid paying interest on your outstanding balance and late payment penalties. You can do this by setting up a direct debit from your salary to your credit card account. By doing this, you will always have enough money to cover your monthly expenses. Set up alerts so that you know when your bill is due.
5. Check your credit card statement regularly.
Most people don’t check their credit card statements every month. Check it regularly to ensure that you are not overspending, and check for fraudulent charges, errors, or other problems.
By checking your statement regularly, you can catch any unauthorized charges or spending and notify the credit card company right away. This will help you avoid any potential financial headaches later.
6. Redeem rewards
Check the rewards your credit card issuer offers and redeem them. You can redeem your points for cash back, gift cards, travel, or merchandise. Look for the most flexible option to redeem your rewards.
If you’re looking for the most flexible option, cashback is usually the way to go. You can typically redeem your rewards as a statement credit or as a direct deposit into your account. And since cash is always useful, this is a great way to get the most value out of your rewards.
Gift cards can also be a great option, especially if you have a specific retailer in mind where you can redeem your reward. And if you love to travel, redeem your points for flights, travel insurance, hotels, rental cars, and more.
7. Understand what credit card fees are and how to avoid them.
Credit card companies will charge you annual fees, late payment fees, cash advance fees, and more. And while some of these fees are necessary, you can avoid others. Knowing the different types of credit card fees is the first step to avoiding them. Here are some of the most common fees and how you can avoid them:
Annual fees: This is charged annually and, in most cases, is unavoidable. Most credit card issuers charge an annual fee.Most credit cards issuers in Kenya charge from Ksh 4,000 in annual fees.
Late payment fees: If you don’t pay your credit card bill on time, you will be charged a late payment fee. To avoid this fee, just make sure you pay your bill by the due date.
The issuer will charge you a fee if you transfer money from your credit card to your Mpesa or bank account. The best option is to keep the credit card for purchases; by doing this, you will avoid the cash advance fees.
For example most credit card will charge you upto 5% for cash from your credit card to Mpesa. Plus any cash advance you receive is also chargeda 1% excise duty.
Monthly interest fees
You can avoid the monthly interest fees by paying off the monthly bill before its due date. By doing this, your credit card will have no bill on the due date, and thus no interest is charged.
Over limit fees
Over the limit fee is a charge on your card if you spend above the credit card set limit. Make sure you don’t spend more than the allocated limit to avoid the charge. For example standard chartered charge up to ksh 2000 if your surpass the set credit limit.
8. Download the mobile app.
Downloading the credit card app will make it easier for you to manage it. You can log in at any time to check the balances and the credit limit. The app makes it easier for you to track spending and ensure your payment is posted on time.
These are a few things to keep in mind when using a credit card for the first time. It’s important to only charge what you can afford to pay back, stay within your credit limit, and make payments on time. Additionally, it’s a good idea to monitor your credit card activity and keep track of your expenses. By following these tips, you can avoid costly mistakes and use your credit card responsibly.