Use the credit card as payment method, not for loan

This is a guest post by Mr. CC from Ask Mr. Credit Card.com

Greetings to my friends on the other side of the world in Malaysia. I have been asked to share my thoughts on the benefits of credit cards. Here in the United States, everyone seems to have at least one credit card in their wallet, however, there are two kinds of credit card users.

The first kind, uses the card as a source of a loan. Credit card companies encourage this practice by offering low introductory interest rates, and allowing their customers to pay their balance off over a very long time. Credit card holders can do this very easily as they have a very low minimum monthly payment. Often, people begin this habit after they are given a card at a very young age, such as while they are attending college.

Ultimately, the card holder finds themselves increasing their spending until they can no longer afford their minimum monthly payment. Even if they can afford their monthly payments, they end up paying off items over several years, often paying more in interest than the item originally cost. For these people, their credit card debit becomes a drag on their entire financial lives. They may have trouble getting loans for homes or cars if their debt is too high. If they make their payment late, their interest rate can be increased, and their credit rating can fall.

The other type of credit card holder merely uses their card as a method of payment. These people will charge daily purchases like food to their credit card, even if it only costs a few dollars. When the bill comes, they pay their entire balance in full, avoiding any interest fees and accumulating no debt. These people tend to have exceptionally high credit ratings, and they have no difficulty obtaining loans to purchase a home or a car.

If I could teach one lesson to everyone reading this, it is that you should only use a credit card as a method of payment, not as a loan. I never charge anything that I cannot afford to pay off in full at the end of the month. I never pay any interest. In fact, many credit cards offered here give you a rebate in the form of %1-2 cash back, or as points in a reward system, often travel related. As someone who gains rewards with my credit card spending, I am able to earn free airline tickets for a vacation with my family nearly every year. When used in this manner, credit cards are more convenient than carrying cash.

Those who do not pay off their balance every month often do so because they are addicted to spending. When you don’t see the bill until a month later, it is easy to give in to the temptation to make purchases that you cannot afford. When you are only paying off a fraction of the bill every month, it is easy to convince yourself that it is OK to spend more. This addiction can be as difficult to break as almost any other. Like an addiction, the best cure is not to begin in the first place.

Pay your bill off in full, on time, every month. Teach your friends and your family to do the same. Learn how to say no to stores that offer to finance large purchases. Save your money in your bank account until you can afford something. Earning interest on your money will always be more rewarding than paying interest on a loan.

That is all of the advice I have for you today. Now, if someone can find a restaurant in Denver, Colorado that serves Malaysian cuisine, I will be very grateful.

Mr. Credit Card answers reader’s questions about credit, debt and credit cards each day on Ask Mr. Credit Card’s Blog. You are invited to grab his free RSS feed for more tips on credit management.