Three Recommendations for Credit Card Usage

Swiping your plastic is easy and painless -- until the bill arrives.
i Burke/Triolo Productions/Brand X Pictures/Getty Images

According to the 2011 Consumer Financial Literacy Survey, 91.7 million Americans carry credit card debt from month to month. There's no denying that credit cards are a convenient and popular form of payment. But if you're not careful and disciplined, the debt can pile up quickly, and you might end up spending hundreds, or even thousands, of dollars in interest and late fees. Rather than using credit cards as a substitute for funds you don't have -- which sinks you further into debt -- train yourself to use them wisely.

Choosing Credit Wisely

Credit card offers are everywhere, and it doesn't take much to qualify. In fact, as long as you're over 21, you can expect to see credit card offers in your mailbox from time to time. It's also easy to go online and apply for credit cards. Before choosing a credit card, do your research. Look at the rate offered. Find out if it is an introductory rate -- such as 0 percent APR for 12 months -- or if the rate quoted will remain the same for the life of the card unless you default. If the rate goes much higher after six months, find another card. Look at late payment fees and default interest rates. Find out if the credit card you're considering has an annual fee. If it does, look elsewhere. Also, look for the length of the grace period -- the time you have between your purchases and when interest accrual begins on the purchases. Avoid any card that immediately begins charging interest on purchases you make.

Building Credit History

You usually need some kind of credit history to get financing for a large purchase such as a mortgage or vehicle. Credit cards are the perfect way to build that history. To build credit history, apply for a low-limit card with a competitive interest rate and a grace period. With a low limit, you won't be tempted to overextend yourself. Shop around to find the best deal, rather than accept the first offer that appears in the mail. Once you receive your card, make small purchases that you know you can pay off before interest starts accruing. Pay off your purchases and repeat the next month.

Purchase Protection

When you purchase certain items with your credit card that turn out to be defective, you are protected under the Fair Credit Billing Act. For instance, if you buy a television with your credit card and it doesn't work, contact the merchant who sold it. If the merchant refuses to exchange the product or post a refund to your card, you can contact your creditor and explain your issue. You will need to produce documentation that you contacted the merchant, so make a record of the dates, times and names of people associated with your contact. If the creditor finds that the merchant is at fault, the charge will be removed from your bill. In addition, some credit cards offer warranties or supplemental insurance. Credit card insurance kicks in if you have a collision in a rented car or you have to cancel your travel plans due to illness and you already bought plane tickets.

Saving Money on Interest

If you have an existing credit card with a balance that's too high to pay off quickly, consider transferring the balance transfer to another card with a lower interest rate. Before you transfer the balance, read the terms of the credit card agreement. Make sure you know the interest rate for balance transfers and how long it lasts. Look for a low interest rate that is fixed for the life of the balance for the most benefit. Also, check out the balance transfer fee. Try to find a card that caps the transfer fee, which is often cheaper than if the fee is based on a certain percentage of your balance. Pay close attention to what happens if you miss a payment. If the rate defaults to an astronomical figure, don't transfer your balance.

Another way you can save money on interest by using a credit card is if you qualify for a high limit card with a low rate of interest. Sometimes credit card interest rates are lower than the rates you can get at a bank. If you need to make a large purchase -- such as a vehicle -- is a way to get a low-interest loan and save money.

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