Using a credit card is the norm in our society. According to data from Experian, half of all Americans own at least two cards and 13% have at least 5 cards. With how convenient credit cards can be, it comes as no surprise that they are in high demand.
By using a credit card, you don’t have to waste time counting change. And if you have your cash stolen, it can be difficult if not impossible to get it back. However, if you lose your card, you can call the issuer and have them freeze your credit to prevent unauthorized purchases.
Of course, the danger of using a card goes beyond theft. Most of the time, the problem lies in our own personal reaction to it. If you regularly misuse this purchasing tool, you might be digging yourself deep into debt.
If you have become comfortable using one particular credit card, you may not feel the need to switch. Although your card might be your favorite because you have maintained a great relationship with the issuer, you could be missing out on bigger rewards.
It is usually discouraged to close an old credit card since it temporarily affects your credit score. But there are some benefits to opening a new one that you might want to consider.
3 reasons to apply for a new credit card account
Some experts say that you should keep your card ownership to a minimum—two or three should be enough. Having more cards than you can handle poses a strong temptation to overspend, which can lead to debt if impulse spending or overspending gets the best of you.
While you should be careful with your credit card applications, there are three important reasons why you might want to replace an old credit card with a new one.
1. When you reach a milestone
A milestone is a life event that is significant enough to influence various changes in your life—many of which can affect your expenses.
If this happens, you might want to consider getting a new card to complement that change. For instance, if you are starting a company, you could open a business credit card for business purposes.
The same applies if you get married, have children, or move to a new city. If you relocate, you can open a credit card for a local grocery store you frequently visit to receive discounts and rewards.
2. When you’re ready to make a major purchase
If it’s time to take a big financial step such as purchasing a new home, getting a new card might be a good idea. Many offer incentives, such as a big sign-up bonus.
For instance, if you want to buy items for your house after a move, you might want to head to the local department store and open the credit card they offer. That way, you can benefit from any sign-up discounts and rewards once you start using it.
You can save a lot of money when you buy the appliances, furniture, and equipment that you need in your new home. If you are going to buy them anyway, why not choose the option that can help you save?
3. When you have set life-changing financial goals
Sometimes, financial goals require you to make purchases. If you plan to open your own business, for example, a business credit card can help you separate your personal and business spending. This makes it easier to track your expenses and account for them while doing your taxes.
Another goal you may have set is traveling. A much-needed vacation can be costly and may require a big portion of your savings depending on your travel plans. In this case, you may want to get a credit card that offers travel rewards or airline miles.
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Important rules when using your card for purchases
Getting a new credit card has its benefits but you must be careful and avoid going overboard with your spending. Here are a couple of rules to help you handle your cards responsibly.
Don’t carry over a balance
According to a study published on ConsumerFinance.gov, there are two types of credit card holders: transactors and revolvers.
Transactors are the ones who pay their balance in full at the end of each month to avoid finance charges. You should aim to fit this category as the best way to protect yourself from debt.
Revolvers, on the other hand, are the credit card owners who carry over a balance to the next billing cycle, thus incurring finance charges and possibly debt. Given all the extra charges you will be forced to incur, this is obviously not the best option.
Don’t carry it unless you expect to make a purchase
Planning to use your card often involves taking the amount you will spend into consideration for your budget. This will help you keep your spending limit top of mind. If the expenses are within your budget, you should have the cash in your account when the billing statement comes due. You can then pay off your balance in full to avoid wasting money on interest charges.
Don’t be afraid to negotiate
Negotiating with your creditors may seem like a daunting task but do not feel intimidated. You have every right to request a lower interest rate. Issuers will often comply – especially if you have displayed good payment behavior. If it means you will remain a loyal client, there is a chance they will relent and lower your rate.
Don’t be complacent
Finally, it’s important to keep yourself informed about financial news in the country. For instance, the Federal Reserve recently pushed interest rates from 4.75% to 5%, and additional increases are expected throughout the year. As a result, some credit cards will likely raise their own rates. Be prepared to negotiate to keep your rate where it is – or possibly lower it further. It never hurts to ask.