Responsible Use: Best Practices for Your Credit Card

Credit cards can be powerful tools for building your credit score and managing finances—but they can also become a source of financial stress if not used wisely. The key to making the most of your credit card is using it responsibly.

You’ve likely heard the basics: pay on time, avoid overspending, and aim to pay off your balance as quickly as possible. But let’s explore additional strategies to help you feel more confident about managing your credit card.

Shop for the Best Credit Card Rates, Not Just Bonuses

When looking for a new credit card, it’s easy to be drawn in by flashy welcome bonuses and special offers. While these perks can be appealing, it’s crucial to consider what else comes with the card – including the rate, fees, and restrictions.

Watch out for these potential credit card pitfalls:

• Annual fees, overlimit fees, and late payment fees

• Higher interest rates for cash advances or specific types of purchases

• High-interest rates once the introductory period ends

That last point is particularly important. A 0% introductory APR can be tempting, especially if you’re planning a big purchase. However, when the intro period ends, your interest rate could spike to 25% or more, depending on your credit score. That’s nearly double the interest charges compared to Sierra Pacific’s Visa!

If you carry a balance, high interest can quickly add up, lowering your credit score. A lower score can, in turn, lead to an even higher APR, trapping you in a cycle of credit card debt.

Keep Your Credit Card Balance Low

The best way to avoid falling into credit card debt is to avoid carrying a balance at all. If paying off your full balance isn’t possible, aim to keep your balance under 30% of your credit limit.

This isn’t just a random number—it’s a key factor in maintaining a healthy credit score. When your credit card balance exceeds 30% of your limit, your score can drop quickly. The good news? Your score can recover just as fast once you reduce your balance again.

Transfer Your Balance Wisely

Of course, all of this is made infinitely harder if your interest rate is 20% or more. At that rate, at least a fifth (likely more) of each payment you make is just covering interest, ,making it harder to pay down the principal.

Transferring your balance to another credit card with a much more competitive rate is the best way to get credit card debt under control. Since more of each payment you make will go toward the principle instead of to interest, you’ll pay down your balance faster. And you’ll pay less in interest overall – a lower rate credit card can save some people hundreds in interest payments per year. 

Look for these things when you’re considering a credit card balance transfer:

1. Low Annual Percentage Rate –look for the regular rate, not just the intro offer. The lower the rate, the better your savings. 
2. No Balance Transfer Fee – Some banks charge you up to 5% of the amount you’re transferring, which can be a big expense. Look for a credit union who won’t charge you balance transfer fees.
3. Credit Card Limit – Find out how much you can qualify for to plan out your balance transfers.
4. No Annual Fee – Closing credit cards can hurt your credit score, so you want to avoid cards with annual fees whenever possible. You could get stuck paying that fee forever!

Sierra Pacific: Your Partner in Financial Health

Managing credit card debt doesn’t have to be a solo journey. With Sierra Pacific, you not only gain access to purchasing power at competitive rates, you also gain resources and a support system.

If you’re looking to build or rebuild your credit or need help managing credit card debt, reach out to us today. Together, we can create a plan that works for you.