Learn 5 Ways to Use Credit Cards Wisely to Avoid Debt

Tip #3: Maintain a low utilization percentage.

You should try to pay your balance in full each month, but if that isn’t possible, preserve a low utilization ratio. The percentage of credit currently in use is referred to as your utilization ratio.

 

Assume you have a $5,000 credit limit. If you have $2,500 in purchases on your card at any given time, your utilization ratio is 50%. Using a high percentage of your available credit can make debt repayment more difficult and reduce your credit score.

Furthermore, you will end up paying more interest in the long term.

Keep your utilization ratio around 30% of your available credit as a general rule. Lower your credit score over time. Plus, you’ll end up paying more interest in the long run. As a general rule, keep your utilization ratio below 30 percent of your available credit.

Tip #4: Know your credit card’s terms.

Understanding the terms of your credit card agreement will help you avoid surprise fees and keep track of your payments.

 

Different credit cards will have varying interest rates and fees.

Read the agreement before using your card to understand when you will be charged a fee, how interest will be applied to your account, and when the interest rate will increase.

Choose a card that corresponds to your spending habits and financial objectives.