Guide to Credit Cards: What Kind of Credit Card User Are You?
Before implementing the 4 steps to getting the most out of your credit cards, you need to know what kind of credit card user you are. You can do that by answering (honestly!) the following five questions:
- Do you carry a balance on any of your credit cards from month to month? In other words, do you borrow money on your credit cards?
- If yes: Over the last year, has the combined balance on your cards stayed flat, gone up or gone down?
- When you receive your credit card bill, is it often more than you expected?
- Do you find that you make regular impulse purchases using your credit card or cards?
- Do you spend more than you aim to because you charge unnecessary luxuries (Starbucks coffee every day?) to your credit card or cards?
You should now find it easy to determine which category of credit card user you fit into:
The Self-Destructive Credit Card User. You've got a bunch of credit cards. You carry a balance on all of them. In fact, you owe much more money in total than you can afford given your financial situation and income. You're not saving anything, but that doesn't stop you using your credit cards to buy unnecessary luxuries and make regular impulse purchases. You get a shock every time your credit card statement arrives - "Did I really spend that much?". Although your outstanding credit card balances rise every month, you think that as long as you can afford the minimum payment due - and you just about still can - there's no problem.
The Low-Discipline Credit Card User. You own a handful of credit cards, and although you carry balances on some of them the amounts are reasonably low compared to your overall financial situation and income. You manage to save every month, and your outstanding credit card balances are stable or falling as you try to pay off more than you spend each month. But you still spend more than you should. Your credit card lulls into making impulse purchases and buying things you wouldn't if you paid cash.
The Optimal Credit Card User. You have a bunch of credit cards, but you don't carry balances on any of them. You pay the balance on your credit cards in full each month. What's more, you don't spend more due to your credit cards than you would if you paid cash. The cards simply give you convenience, rewards and purchase protection, and you like that.
Once you've decided which of these categories you fall into, things should become clearer:
- If you are a Self-Destructive Credit Card User, you are losing more than you gain by using credit cards. Credit cards encourage you to spend too much, and make it hard for you to save. They are dragging you into debt and saddling you with hefty financing costs at excessive interest rates. You need to wean yourself off credit-card-financed spending, and pay off your existing credit card debt. You'll find some advice about how to do that later in this Guide, in How to avoid borrowing from credit cards and Low-interest rate credit cards.
- If you are a Low-Discipline Credit Card User, you benefit from the flexibility and conveniance of credit cards, and you can gain from the reward programs and purchase protection they offer. But you shouldn't be borrowing money on your credit cards at high interest rates, so you need to pay off your credit card balances as soon as possible and never carry balances again. And you need to be in greater control of your spending by combatting the way credit cards lure you into spending more than you really want to. The next few sections of this Guide will help you to regain full control of your spending, and to avoid credit card fees and interest.
- If you're a Model Credit Card User, you have no problems. Read the rest of this Guide to find out how to avoid ever paying late fees, and how to choose and find credit cards that maximize your rewards.
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