You’ve heard the warnings before: Don’t use credit cards, especially if you already have debt. There’s good reason for this advice, namely that it’s all too easy to overspend and rack up more debt that’s costly to repay, thanks to high interest rates that average 15% (but can easily run upward of 20%). But avoiding plastic altogether may not be necessary, even if you have student loans you still need to repay.
That doesn’t mean you get to swipe your card with abandon. When it comes to the best way to use a credit card, think of it like any other tool. It can be used wisely to construct something that benefits you, or it can be used irresponsibly and cause additional problems. Here’s the best way to use a credit card to your advantage.
How to use a credit card wisely
A credit card can help your finances if you know what you’re doing. That starts with understanding what “responsible use” means and looks like. Here’s a rundown of the best way to use a credit card:
- Never charge more than you can afford.
- Don’t charge more than you planned to spend or budgeted for. It’s easy to rack up additional purchases because you don’t have to part with cash right away, but the wisest move is to use your card as if it were debit or cash.
- Pay off all balances on time and in full.
- Limit the amount of new credit you request. Opening multiple credit cards can ding your credit score, and managing several different lines of credit can complicate your financial situation.
- Avoid consistently charging up to the limit on your credit cards—even if you budget for the spending and can make the payment in full and on time. Part of your credit score is determined by your credit utilization ratio, or the amount of credit you use in relation to how much you actually have. The lower your ratio, the better your score.
Consider these the basic ground rules for credit card use. If you can’t reliably follow all of these while also managing your student loan payments, sticking to cash or debit for your spending is the best course of action.
If you can agree to the above rules and you hold yourself accountable to them, you may be able to use credit to your advantage to give your financial situation a boost.
How responsible credit card use can help your finances
1. Credit cards offer consumer protections
When you use cash, your money is gone when it leaves your hand. There’s little to no recourse if you have an issue with your purchase or if the money is stolen.
Debit cards offer a little more protection, but not much. When you swipe your debit card and a transaction posts, that money is taken directly out of your checking account. Even though you can dispute the charge, that cash is gone until the issue is resolved. And if your debit card information is ever stolen, the thief has direct access to all the money in your account.
Credit cards, on the other hand, offer a variety of protections for users. Most provide some degree of fraud protection, keeping you from being liable for fraudulent charges. You can dispute charges if necessary, and purchases placed on your credit card don’t impact your cash flow until you pay the statement.
2. Responsible use over time can help build your credit score
If your existing student loan debt negatively impacted your credit score, repaying those loans over time will help repair the damage—but using a secured credit card responsibly at the same time helps, too.
Again, for credit card use to help your credit score, you need to follow all the guidelines discussed earlier. Showing that you can consistently, successfully manage multiple lines of credit (from your loans and your card) will give your credit score a boost over time.
This is important because your score can impact your financial life in a big way. If you want to borrow money in the future (to buy a house, for example), your credit score will be a huge factor in determining the interest rate you receive on your loan. The better your score, the lower your rate.
That matters on big purchases, because even one extra percentage of interest can make the difference between saving hundreds or thousands of dollars over the life of your loan.
3. You can earn points and rewards for use
This is one of the biggest perks for responsible credit card users. Earning rewards that you can redeem on things like hotels or airfare allows you to save on purchases that might otherwise not fit within your budget between your regular bills and your student loan payments.
It’s important to understand, however, that you should never use a credit card for the sole purpose of trying to rack up points. This is a quick way to overspend, and that’s a slippery slope that can lead to carrying balances on your card, accruing interest, and getting even further into the red with your debt.
4. Credit cards allow you to maximize your everyday spending
This is another way to make the most of the purchases you need to make anyway. Depending on the card you choose, you can earn cash back rather than points or rewards for specific programs. This is a smart strategy if you have student loan debt in particular, since you’ll want to free up as much cash as possible to put toward your monthly payment.
5. You keep more cash in your pocket
One final way to utilize credit cards as a tool to improve your finances is to leverage offers like interest-free financing. The benefit is that you can plan your spending on your card and pay off the balance over time without paying interest. This allows you to make purchases you planned ahead for, without having to part with the cash all at once.
A word of warning: Be careful here. These offers come with many stipulations and are usually limited to a certain timeframe, like the first 6 or 12 months of having the card. In addition, making the payments on time is critical. Most of these offers include fine print that state if you miss just one payment, you’re responsible for paying a high interest fee on the entire balance on your card. Before taking this route, be sure you know and abide by the rules of the program.
As long as you can use a credit card to make responsible purchases and pay off your balance every month, you can benefit from one or more of the perks above. Do the necessary research when finding a new card and educate yourself on the rules and fine print associated with your account, and you’ll be well on your way to discovering how to use a credit card wisely.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.57% – 6.97%1||Undergrad & Graduate|
|2.47% – 6.99%3||Undergrad & Graduate|
|2.68% – 8.77%4||Undergrad & Graduate|
|3.24% – 6.66%2||Undergrad & Graduate|
|2.61% – 7.35%5||Undergrad & Graduate|
|3.01% – 9.75%6||Undergrad & Graduate|