How to Use Credit Wisely

(NewsUSA) - As the holiday season approaches, more people are out shopping, searching crowded stores and online promotions for the best discounts, and using their credit cards to pay for it all. But beware the financial dangers of credit use — how you pay for these deals could safeguard your budget or lead to debt.

A CERTIFIED FINANCIAL PLANNER^™ professional can help you guard against costly credit mistakes, paving the way for a financially sound festive season and beyond. Learn more about how to use credit in a way that works for you with the insights below.

Choose Your Credit Card Wisely

Whether you’re shopping for holiday gifts or purchasing necessities like groceries, the credit card you use can make a big difference. There are several factors to consider:

• Interest Rates. Rates generally run from 21-33%. The standard bank card charges at the low end of the range, and retailer credit cards (those typically with the store’s name on them) charge as much as 33%.
• Cash Back. Among the best deals are bank cards that offer cash back ranging from 1-4% of your purchase.
• Rewards Points. Some cards have rewards programs where you earn points that you can redeem for products or services. They may seem attractive but are worthwhile only if you’re actually interested in the rewards offered.
• Cash Discounts. While retailer credit cards have the highest rates, some offer big cash discounts at the point of purchase. That may be the only time they’re worth using.

Improving Your Credit Score

Boosting your credit score can help you qualify for the lowest available interest rates on auto loans, personal loans and mortgages. If you can, pay the full balance when your credit card bill arrives. But most importantly, never miss a payment. Paying on time not only avoids late fees, but also is a key factor in improving your credit score. The easy way to ensure timely payment is to set up automatic online payments.

A CFP^® professional can help you develop other strategies to save money while improving your credit profile, including the following:

• Identifying which debt to pay down first.
• Switching to balance transfer cards that don’t charge interest for a year or longer.
• Converting high-interest debt with interest payments that are not tax-deductible to lower-interest debt whose interest payments are tax-deductible.

Establishing Credit

Lenders offer credit to people with a long and reliable credit history. Most young adults don’t have one. There are various ways to obtain credit, but steer clear of debit cards that claim they can help you build a credit history. When you consider the costs and requirements, they’re usually no bargain. You have better and cheaper options for establishing credit. Here are three of them:

• Get a secured credit card.
• If you have a student loan, make sure you’re up-to-date with payments.
• If you pay rent, ask your landlord to report your on-time payments to the credit bureaus.

The choices we make in managing credit can have a lasting impact on our financial journey. As you navigate the complex credit landscape, remember that CFP^® professionals can offer tailored guidance for your unique circumstances. Whether it's identifying strategic debt payments, exploring balance transfer options or establishing credit responsibly, a CFP^® professional can provide a roadmap for achieving your financial goals. Find a CFP^® professional today.