It may be time to put away your credit cards and pay cash.
Most important points:
- Paying for purchases with credit cards means collecting rewards and getting cash back.
- Despite these benefits, in some cases it may be worthwhile to temporarily reduce credit card usage.
Charging a credit card can be a smart financial move. In general, credit cards reward you for the purchases you make through points or cash back. That’s basically free money for buying the things you already intended to buy.
But sometimes it pays to keep your credit cards in a safe place and temporarily stop using them – or reduce their use. If these situations apply to you, you may want to use your credit card less frequently in 2022.
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1. You already have a huge balance to pay off
There is nothing wrong with charging a credit card and paying it off every month. But when you’re sitting on a giant pile of credit card debt, the last thing you want to do is add to it. And if that’s the case, you may want to rely more on cash in the coming months while you work on paying off your existing credits.
The trouble with credit cards is that unless you go in regularly and check your balance, you’ll end up spending too much money. On the other hand, if you have to physically hand over cash for the purchases you make, it can more easily signal your brain that you need to buy less — at least until your next paycheck comes in.
2. The interest rates on your credit cards are high
Credit cards are notorious for charging high amounts of interest. If you generally transfer your balance from month to month, and you’re also stuck with some credit cards whose interest rates are exorbitant, that’s reason enough to cut back on swiping this year and go more cash instead. trust .
3. You are trying to increase your credit score
The higher the balance you carry on all your credit cards, the more damage it can cause to the credit score. One big factor that comes into play when calculating your credit score is your credit utilization ratio. That ratio measures the amount of available revolving credit that you use at one time.
A ratio of more than 30% can lower your credit score, making it more difficult to borrow money affordably when you need to. So if you’re looking to improve your credit score — whether it’s for work or because you want to apply for a specific loan this year — it can pay off to reduce your credit card usage.
Imagine you have a total credit line of $10,000 and you owe $3,000 on your various credit cards. That means you’re already using 30%, and if you go even higher, your credit score could go down quickly. That alone is a good reason to use your credit card less often for the time being.
While credit cards are a useful financial tool, they can also open the door to additional spending, expensive debt and damage to credit. If these circumstances apply to you, it may pay off to fall back on cash more this year — and ramp up your credit card usage once your financial picture looks a bit healthier.
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