Using Credit Cards Wisely

Chances are if you're shopping online, many of you are using a credit card that will charge interest on the purchase. Unless you're paying off your credit card in full at the end of the month, this is not the best way to save money--even if you are using Shoes.com promo codes or Best Buy coupons on your purchases.

On the one hand, financial advisers say that credit card users should always pay off their credit cards in full every month to avoid interest charges, but most cardholders will respond with the obvious: If I could pay in full, I'd pay in cash (or by debit card).

If you're really smart, you can use a credit card to earn rewards points and then pay off those balances right away--actually earning money on your shopping. But many people don't do this.

So let's look at the best ways to use credit cards:

1. DO have different cards for different purchases. Though it may seem like having more than three credit cards is unwise, this is only true if you overspend. Say you have a credit card only for travel purchases. This makes a lot more sense than putting an airline ticket on an all-purpose 20% APR card.

2. DON'T make purchases on a 0% balance transfer card because you'll negate the savings from the balance transfer AND the APR for purchases on the card will not have the same low APR as the transfer. Other than paying down the balance, leave that card alone.

3. DO use your card only for impulse buys. OK, that sounds like a "don't." What I actually mean is that you shouldn't use your credit card to buy everyday things. If you're putting a toothbrush on credit, you're going to be heading towards a real debt problem. But if you use a credit card sparingly for non-essential items, this is a much better system for staying out of long-term debt.

4. DO pay above the minimum on your credit card. This isn't only to help you get out of debt faster, but because credit card companies will recognize this and see you as less of a credit risk. Paying $100+ above the minimum will give you negotiating power should you attempt to lower your APR by negotiating for a lower rate. Additionally, keeping your balance below 40% of your credit limit will also make you more attractive to your credit card company.

5. DON'T cancel out an old credit card. Once you pay off that card, it's not necessarily a good idea to cancel it--even if the card has been a headache. An old card is an example of an extended credit history, which can improve your credit rating. Remember, the length of your credit history is as important as paying off your bills on time. You may even be able to negotiate for a lower APR for that older card.

The best advice when it comes to using credit cards can be summed up in a word: sparingly. That's the best approach to using credit--especially if you're carrying a balance month to month, as most people normally do. One thing's for sure: credit cards offer a lot of freedom, but they can be stifling as well if your debt gets out of hand.

So let us know: How do you use credit card? For essentials or impulse buys? Do you have several cards in your wallet? Do you pay them off in full? Are they a convenience or your Achilles heel?