Your 5-minute guide to credit cards

Credit cards do have some benefits, but it's easy to get into financial trouble if you rely on them too much. Here are more than a dozen tips for using cards wisely.

Use a credit card wisely and you can reap benefits like cash back, bonus points and airline miles, not to mention a better credit score. Use it unwisely and you could end up under a mountain of debt.


The No. 1 rule is: Pay off your balance every month. Otherwise, you'll pay interest on your purchases. Paying the balance takes discipline. About 40% of households carry credit card debt, according to the Federal Reserve.

Make your payments by the date -- and time -- they're due. Late fees are $29 or more. A couple of late payments will trigger an interest rate increase. Because late and missed payments lower your credit score, the interest rate can go up on your other credit cards and for future loans as well.

Limit the number of cards you have. Experts recommend having two to six cards. Applying for lots of cards can hurt your credit score. Conversely, closing several credit cards at once will trigger a decrease in your score.

Read the fine print. Know the interest rate you will be charged, the grace period for paying your debt before interest kicks in and your credit limit. Does your company use two-cycle billing? (Better look, because two-cycle billing means you could pay interest even when you carry no balance.) Also, almost half come with a "universal default" clause, allowing an increase in your interest rate if you are late paying any other bill.

Negotiate. If your credit score is 700 or above, you may be able to get a lower interest rate or get the company to drop a late fee. (Estimate your credit score.)

Don't exceed 30% of your credit limit on each card. Credit bureaus don't care if you pay off your balance each month. They're interested in how much of your available credit you use. If it's excessive, your credit score will drop.

If you're transferring a balance to a new card with lower interest, find out how much the company will charge for the transfer. Urge that it be done electronically so you don't accumulate interest on both the old and new accounts. Low-interest introductory offers may apply only to the balance transfer and not to new purchases.

Reward cards that provide dividends like rebates and airlines miles sound too good to be true, and can be. The higher interest rate charged by most reward cards can more than offset the reward if you carry a balance. Reward offers can change with little notice and may come with budget-busting conditions -- for instance, you have to spend a certain amount to earn the reward.

If you buy a defective item or protest a charge, your credit card company is obligated to investigate. If your card is stolen, you're liable for no more than $50 for unauthorized charges.

Other "services" offered by credit card companies have potential drawbacks.

Contactless credit cards make it even easier to purchase items because you don't need to swipe your card or hand it to a cashier. But thieves can scan the info on your card. You can buy a signal-blocking sleeve or make one out of aluminum foil.

Don't use "convenience" checks your credit card company sends you unsolicited in the mail. They're costly -- with a fee of 3% or 4% of the amount you write, plus high interest rates with no grace period -- and don't provide the consumer protection you get when you make a purchase with your credit card. (See "Dangerous checks in the mail.")

Credit card protection insurance generally covers only the minimum payment if you become disabled or unemployed, and interest continues to build on your outstanding balance.

Using a credit card issued by a department store you frequent can entitle you to cardholder discounts, but limit yourself to one card. Each department store account you open reduces your credit score.

Getting and using a credit card could be the easiest way to re-establish credit if yours has gone sour. But getting back into the credit game comes with potential hazards.

Cards issued to those considered credit risks come with interest rates in the 18% to 22% range and low spending limits. Such cards sometimes have extra fees hidden in the fine print.

Don't take the bait when companies want to issue you one low-limit card after another. You can find yourself back in debt, paying late fees, over-limit fees and high interest rates on multiple cards.

By MSN Money staff

Tackle the Credit Card Debt! Step #3

First and Foremost I would advise you to take a hard look at your credit report! To get a copy of the credit reports go to: www.annualcreditreport.com.

After you have received a copy of your credit report total up all of your debts and prioritize them. There are two ways to sort them: By Credit Card Balance or by the Interest Rate on the Credit Card.

If you have been keeping up with my posts you will recall that I am a huge Dave Ramsey fan and an advocate of his baby steps program.

Dave would tell you to sort them by balances and start with the smallest balance. Concentrate on paying that credit card off and once you have succeeded continue on to the next on the list.

However, other financial advisors emphasize the importance of prioritizing your cards based on interest rates, focusing your efforts on the cards with the highest rates first and moving down the list.

I believe the solution depends on the person: If you are a person that must see results to say motivated then Dave’s approach will probably be best: Prioritize your cards based on the cards balance, pay the smallest balance first and once you have completely paid the card off proceed to the next. Always pay the minimums on the rest.

The goal is to improve your credit and become debt free – not ruin your credit by only making payment on one card

However, if you are very analytical and somewhat disciplined: Then I would advice you to focus first on paying down the credit card that is nearly maxed out. Pay minimums on the others. Next, start paying off the card with the highest interest rate. Pay minimums on others.

Be honest with yourself and what it takes you to stay motivated and pick one of the two. Most people need to see results to stay fired up and eventhough prioritizing your cards based on interest rates is the most “logical” answer - you may have to wait a little longer to see results.



Other Tips:

- Call your credit card companies, tell them you've got offers for cards at lower rates and ask them to lower your rate. If you've paid regularly, they are likely to negotiate.
- Stick credit cards in a drawer. Don't use them, but don't close accounts. Closing these accounts can lower your credit score. I highly recommend cutting the cards so you don’t have access to them at all! Out of Site – Out of Mind!
- Do automatic withdrawal from your checking account to your credit cards so you're never late.
- Use only debit cards. Money comes straight out of your checking account. You're not charging anything.
- As you continually pay off cards and free up cash make sure you put any additional cash toward your debt. Do NOT use it toward anything else. You monthly credit card payments should increase as you make progress.