Eight tips to manage your credit card effectively

Plastic money is a valuable financial tool, but only if you know how to manage credit card properly. It offers you convenience, flexibility, and borrowing power. Likewise, using it irresponsibly can make it work against you, not for you. For instance, if you spend more than what you can afford to pay, you will end up in a pile of additional charges and unpaid debt.

But credit cards don't need to be synonymous with uncontrolled spending. Here are tried and tested tips for managing credit card debt.

• Limit your credit expenses to your discretionary spending
• Have cash on hand to pay for whatever you swipe
• Be proactive, not reactive on your monthly bills
• Monitor all your installments
• Pay more than the minimum amount
• Manage your use of credit
  
• Review your credit card statement
• Keep one primary credit card to manage your spending

Credit card management tips

Make sure you experience all credit card benefits by following these tips for managing credit cards effectively:

Take control of your credit expenses

The rule of thumb for budgeting your credit expenses is that you should limit it to the amount you’ve set for discretionary spending, or the amount of money you have left per month after you’ve paid for all essentials and set aside a portion for savings.

The best practice for budgeting is reserving 50% of your monthly income for necessities, 20% for savings and investments, and the remaining 30% for discretionary spending.

You can use your credit card for items you can live without as long as the amount doesn’t exceed the 30% allocated for discretionary spending. Staying within budget is a crucial step on how to manage debt.

Ensure you have cash on hand for every swipe

Using your credit card has its upsides. Credit cards come with incentives with every swipe, such as travel points, cash back, installment payment options, and other rewards. However, you must make sure that you can afford your purchases.

One way to do this is to make sure that with every tap or online use, you automatically set aside cash for each purchase. Doing so lets you fully pay off your outstanding balances and not leave them open ended. You also steer clear of accumulating a higher balance each month due to interest rates.

Be proactive on monthly dues

To avoid bill shock or the unwanted surprise of a large monthly bill, make sure to keep track of each purchase you make with your credit card.

This lets you have a consolidated list or breakdown of your monthly spending, making it easier to manage your credit card debt. You can anticipate how much you’ll pay each month and, thus, won’t feel overwhelmed when your monthly bill comes in.

Furthermore, when you see that you’re starting to go beyond your discretionary spending, you can immediately cut back on unnecessary items, so you remain on track with your finances.

Keep tabs on your installments

Dividing lump sum expenses into staggered monthly payments helps you manage your budget and afford expensive purchases, but it can also be harmful if you don't stay on top of your finances. Before you avail of another monthly payment, take note of the installment plans you’ve availed.

This practice ensures two things. First, it helps you avoid going over your credit limit. Second, it ensures that you can afford your monthly payments and don’t go over budget.

Overall, keeping tabs on your installment purchases helps maintain good financial hygiene, so you stay on top of your expenses and bills.

Pay more than the minimum amount

Every month, you have the option to pay your total balance or the minimum amount. While you can pay the minimum amount, it is not a wise debt management strategy. It only covers the interest charges, fees, and a small percentage of your total balance.

The remainder of your balance will accumulate interest on the next month/s, which will eventually make it harder for you to pay off your balance.

The best practice is to pay off the total balance, but if that’s not possible, try to pay as much as you can.

Maintain low credit use ratio

Credit utilization ratio indicates how much of your credit you use up every month. This is a factor used to calculate your credit score since it shows how well you manage your debt.

A low credit utilization ratio is ideal because shows that you are capable of repaying what you owe – indicating financial responsibility.

This is also why your credit limit is important. You should know how much you can spend on your credit card, how much you need to pay every month, and pay it off so you can maintain a healthy credit utilization ratio.

Always review your credit card statement

Credit card management also entails protecting your credit card (and yourself) from theft and fraud. At the most basic level, keep your card in a secure place and don’t let others see your details.

You must also protect yourself from fraud and scams. While banks offer protection from these activities, you must also do your due diligence. Keep track of transaction notifications. Review your credit card statement for any unauthorized transactions or charges and report them right away.

Apart from security, reviewing your credit card statement is an opportunity to reflect on your purchases so you could identify if you exceeded your budget.

One card is enough

Before you get another credit card, evaluate if you truly need another one. With only one credit card, it's easier to track what you're spending on and you're more likely to pay your bill on time. You can also maximize rewards to rack up points or amass cash back.

Having multiple credit cards means you can tailor your card usage to maximize different types of rewards and adapt them to your lifestyle (e.g., if you are on the road often, a card that offers gas rebates, discounts with car dealers, and 24/7 roadside assistance is your perfect match). However, remember that this can also mean large amounts of debt if you don’t know how to use credit cards wisely.

For most Filipinos, having one card is enough to simplify your budgeting and spending, especially if you find it difficult to manage multiple cards.

Be a responsible credit card owner

Mastering how to manage credit card effectively entails discipline, responsibility, and self-control. You can maintain a healthy credit by making sure all your transactions are within your budget, and you pay off your outstanding balance each month.

Managing credit card debt is important and it doesn't have to be hard. Follow the tips listed above to reap the credit card benefits that you deserve and use them to your advantage.

Gain access to a wide range of privileges when you apply for a Metrobank credit card today. Enjoy rewards, perks, and additional purchasing power whenever you need it. With our wide range of cards, you’ll find the perfect one to suit your lifestyle.