If we’re honest, we all like to think we’re smarter than average. In fact, studies have shown that 65 percent of people believe they are smarter than average. Yet more than 55 percent of people fail to approach credit cards the right way.
Even some of the most intelligent among us fall prey to the millions of dollars credit card companies spend on advertising to lure us in. The result is a surmounting burden of debt and a slippery slope that proves difficult to claw out of. As interest rates rise alongside inflation, millions are burning more money–and blowing more savings–than ever by paying interest on credit card debt. Yet others are using the same cards to save–if not earn–money.
The difference between the two is not what they earn. It’s not even entirely what they spend.
It’s how they use their credit cards. Because there are three foundational principles that savvy credit card users know–and practice.
As complex as finance can be, there are three basic credit card questions that are very telling of your financial IQ. Though very rudimentary, they can help illustrate one’s foundational perspectives toward not just credit cards, but debt and money management in general.
In business, it can serve as a barometer of the likelihood of your success, as business statistics show that a lack of capital is the second most common reason why businesses fail. Though a business may need far more money than its owner has access to, the ability to manage personal finances is indicative of one’s ability to manage business finances. And when a business’s survival depends on a certain degree of financial prowess, having the fundamentals of financial literacy down makes a difference.
Question 1. Do you use a credit card like a debit card?
A.) Yes, I only use my credit card to buy things I could buy with my debit card.
B.) No, I use my credit card to buy things I can’t afford to buy with my debit card.
First and foremost, the way in which you approach using credit cards is highly revealing. Credit cards should be used the same way a bank debit card is used: to buy things you have the money for. In other words, if you don’t have the money in the bank for it, then you don’t buy it on credit cards. Any substantial purchases can be purchased with collateral loans (e.g., an auto loan), and because the collateral offers the bank some degree of protection, the interest rates are typically much lower than the average credit card’s.
Question 2. Do you carry a balance?
A.) Yes, I carry a balance from month to month.
B.) No, I pay off my balance in full each month.
If you answered no to question one, you’ll be hard-pressed to answer no to question two. That is because if you purchase things on credit cards that you don’t have the money for, you probably won’t have the money to then pay off your monthly balance. Financially savvy credit card users do not carry a balance. Instead, they pay off their entire balance every month. In turn, they don’t pay interest on their credit card purchases.
Question 3. Does your credit card save–or earn–you money?
A.) Yes, my credit card saves me money or earns me money.
B.) No, my credit card costs me money.
Not surprisingly, if you answered yes to question two, that you carry a balance from month to month, you’ll not be able to answer yes to question three, that your credit card saves or earns you money. While there’s no shortage of rewards and cash-back credit cards available, you’re not going to truly benefit financially from these if you’re paying interest. This is because any rewards or cash back you receive is likely going to be a drop in the bucket compared with the interest you paid to acquire said rewards.
Sound money management practices will not only help give a startup a fighting chance but also help founders land funding. Investors want to know both that the founder has a good solid idea and that their money will be in good hands.
As business owners and people among the millions feel the impact of inflation, the more strategic we can be with what we have, the better prepared we will be for the current challenges. It can also help us better weather any future financial challenges that may come our way–making us more resilient, more financially secure, and happier in general. And it starts with seemingly little decisions such as how we use credit cards and pay for credit card debt we incur.
Original Article: here