Paying your credit cards is much easier when you understand how it works, this will allow you to enjoy economic and emotional well-being.
Imagine that you are going to teach a friend to play soccer. The indication could be as simple as: “whoever gets the ball to the goal without putting their hands wins.”
With that indication, maybe your friend would try like crazy to grab the ball and kick it from where it is to put a goal.
Although it would cost you a lot to score, it is possible that one day you will achieve it.
But, what would happen if your friend explains that he can use different strategies to get closer to the goal until scoring is not so complicated?
Well, something similar happens with credit cards, whose Golden Rule is: “you have to pay for everything you buy”.
That is, yes, but there may be many ways to use a credit card so that, when paying, the task is not so complicated.
With this in mind, here we will share 6 steps to pay your credit cards using them in your favor.
1.- Dominate the operation of your card
Yes, incredible as it may seem, there are people with one or several cards that still do not understand well how their plastics work or why the bank charges them what it charges them.
Your credit card, what is it really?
A credit card is the “merger” of a revolving credit (that is, a credit that can be used repeatedly) and a plastic that is used to access the funds.
Said plastic can be used in shops that accept this means of payment to buy goods or services without disbursing cash.
And how it works?
Simply show your card and sign a promissory note (also known as a voucher) for the total purchase. Subsequently, your bank will liquidate the amount in your name to the merchant.
Then, you must pay this amount to your bank, which can offer you different payment schemes: months without interest, months with fixed interest, etc.
The establishments that accept credit cards are affiliated with one or more processing networks: Visa, MasterCard, and American Express, which are responsible for processing and guaranteeing transactions globally.
2.- Use the cut-off and payment dates in your favor
You should always keep in mind the payment date and the cutoff date of your credit cards. Write them, schedule them, stick them in the fridge or wherever you want but do not forget them.
But before telling you how to take advantage of them, do you know their differences
- Cut-off date: the day the bank marks the end of a shopping registration period and, at the same time, establishes the start of another. From your cut-off date, you have up to 20 days to pay.
- Payment date: defined as the deadline you have to pay, either the minimum payment required on your account statement or a higher amount.
Both dates are always the same each month and are indicated on your statement.
Cutting date in practice
Let’s suppose that the bank assigns you as the cut-off date on days 7 and as the payment deadline on days 27.
Take the month of November as an example.
Your purchases made from November 7 to December 7 will be included in your statement and you will have to pay them with a deadline of December 27.
Now yes, use them in your favor!
Buy in the first days after your cut-off date, so you’ll have up to 50 days to pay and if you settle the total of your balance on the deadline you will not pay any interest.
This is a smart way to use your credit card, so you will have enough time to raise the money needed to pay the total balance.
Choose your cut and payment date. Although some banks set these dates forcibly, there are plastics that give you the possibility to choose them.
Ideally, your payment limit is very close to the deposit of your fortnight, and have as a priority first pay your card.
3.- Identify how much you should pay
The first thing you should know is that on each deadline you have 3 payment options:
- Payment not to generate interest: the amount to settle so that the bank does not have the opportunity to apply interest. Those who do it are called “totaleros”.
- Minimum payment: the minimum to cover so that your card is considered current. Unfortunately, many take this amount as the amount to pay each month, which causes their debts to grow and get out of control (for the interests).
- Higher payment to the minimum: although you will not be paying the total and they will apply the interest rate, you will not pay the minimum and you can have control of your debts.
What payment should you make?
Opting for the Minimum Payment is very attractive since it is the option that in your account statement offers you to pay less money at the moment.
However, it is a trap that will cause your card to become a “snowball”. Why? Because of the way it is calculated, you will always pay many interests and very little of your debt.
The best option is to make the payment may not generate interest; in doing so, you “will be winning the bank”, because not only did you borrow them but you did not give them an opportunity to charge you for that loan, only for what you bought.
Tips so that you always pay the total of your debts
Pay the total of your purchases at the end of the month (go full totalero), so you will not let the interest rate of your plastic “come into play.”
Take advantage of the best debt consolidation loans.
Get used to buying in the first days after the cut-off date so you have up to 50 days to pay.
Do not commit to purchases that will put your economy at risk or that you know will require maximum efforts to be paid.
4.- Learn to interpret your account statement
Just as, once you have decided to apply for a credit card, you are willing to do everything in order to speed up the process, you should also show the same interest in knowing how to interpret your account statement.
Why? Because not understanding clearly the terms that come in it could make you fall into errors that result in commissions and interest, that is, loss of money.
These are the 3 most important concepts that you should know how to identify:
Minimum payment + months without interest
On your statement you will see the term: “Minimum Payment Required”. Note that the concept was calculated only with the purchases of that month and does not include outstanding balances that you have deferred to months without interest.
This can be very dangerous because, in reality, the amount to pay is not the one under that concept but the one that appears a few lines down in the section: “Minimum Payment + Months without it.”
If you are careless, you would be paying off the debt you deferred to MSI and that amount would go into revolving and you would apply the corresponding interest.
Also known as the annual effective interest rate, it is the percentage that the bank charges you for not liquidating the total of your balance on the deadline.
In your account statement you will see the section “Interest rate”, which has three options:
- Ordinary: the percentage that was stipulated for your plastic at the time of giving it to you.
- Moratorium: is the rate that would apply if you will fall behind in your payments.
- Promotional Fixed: it is temporary and depends on the bank, almost always agreed in the first months after they give you the card.
Details of operations
This concept, which is usually at the end of the account statements, consolidates the purchases made during the month, as well as the dates and establishments where you made them and the amount (in pesos) that they cost.
In addition to helping you to see clearly each of your expenses, it is a great help to easily notice unrecognized charges.
5.- Do not mix your expenses
Just as having five cards is not the best idea, because you could acquire many debts and lose control of your finances, it is not only having one since you will be revolving your expenses (MSI, Fixed Payments, etc.) when paying everything with the same product.
The correct way to manage your expenses to avoid problems when paying is:
Use a card for your daily expenses
Here you will charge all the expenses that you make in your day to day (gas, super, telephone, etc.) and you will have to pay them in full at the end of the month.
What you should look for in this card is to earn rewards that you would not get when paying in cash or with your debit card.
Use another card only for months without interest
Choose another with access to months without interest and pay with it the highest-priced items (electronic, travel, etc).
Take into account that what you will pay each month should be deducted from your budget and that if you have problems to pay the sum of the monthly payments of your plans without interest, you should wait to liquidate some before taking a new one.
6.-You’re ready, pay!
If you apply these steps, your credit card will become a tool that will allow you to finance many things without the need to be worried about how you will pay.
In addition to having a good payment control, at the same time, you will be demonstrating an impeccable credit history, which will be reflected in a good Score, which will allow you to remain a subject of credit for all the grantors.