Get literate: How to use rewards credit cards for overall financial health

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The average American currently has $38,000 in personal debt (excluding mortgages). And that figure is up $1,000 from last year. Many Americans are learning about healthy personal finance habits the hard way – by racking up debt and failing to properly budget to avoid overspending.

In a recent survey, Equifax found that, “90% of respondents think personal finance should be required to graduate high school, and 67% of respondents would willingly participate in a financial literacy education program if it were free and easily available.”

Until more financial literacy resources are readily available, the best way to improve your financial future comes down to:

  • Learning about how credit works
  • Managing and paying down debt
  • Building an emergency savings fund
  • Understanding why it’s important to improve your credit history

Why credit is so important

It’s nearly impossible today to navigate personal finances without using some form of credit. Credit comes in many forms:

  • Credit cards
  • Student loans
  • Mortgages
  • Car loans 
  • Personal loans

Landlords, insurers and utility companies may check your credit history to decide if a larger deposit is required or what your insurance premium should be.

All instances of your credit, including borrowing, payments and even credit inquiries requested by a lender are compiled into a credit report. 

A credit report shows your history of loan repayments, how many on-time or past-due payments you’ve made, your outstanding balances, list of opened and closed accounts, bankruptcies and more.

As you can see, the amount of debt you carry and how you repay it is being judged by creditors before they make decisions on what they’re willing to offer you. And one of the best and easiest ways to pay down debt quickly and affordably and improve your credit history is by using credit cards responsibly – and paying them on time.

Chane Steiner, CEO of Crediful recommends you set up a monthly autopay for the minimum due  on your card to make sure you don’t miss a payment. “You can always go back in later and pay a higher amount,” he says.

Why the proper use of credit cards can help your credit

Only 36% of consumers surveyed by JD Power fully understand the supplementary benefits of their credit cards. Sure, you may know how to earn rewards, but do you know how much your cards have to offer to help keep your finances fit as a fiddle?

Here are eight ways credit cards can work for you in improving your financial health:

1. Debt repayment

Many credit cards offer an attractive introductory offer to transfer your balances at 0% interest for a year or more. If you’re paying off a high-interest loan or card balance, you can transfer it to your new card and pay it down while saving yourself interest charges. There’s normally a 3% transfer fee, but it outweighs the 14% monthly interest rate or higher you may be currently paying.

2. Credit score maintenance – free FICO credit scores

Many cards offer credit monitoring and provide you with your free FICO credit score. Using this tool can motivate you to make your payments on time and pay off loan balances as you see your credit score improving over time. Knowing your FICO score also helps you determine when it’s best to apply for other credit to get the best rates and deals.

3. Identity fraud protection – zero liability

The Fair Credit Billing Act provides you with security against unauthorized use of your credit card by limiting the amount you can be responsible for up to $50. Credit cards with zero liability improve on the act’s credit card fraud protection.

Chane Steiner of Crediful explains, “A quick call to the issuer, and you’re protected from fraudulent purchases without paying a dime.”

4. Financing big purchases

If you have to make a large purchase like replacing a household appliance or paying for a medical procedure, you can tap into your savings. But doing so you may put you in a cash flow crunch if another emergency comes up. Using your credit card to pay for the large expense and making monthly payments won’t affect your emergency fund.

5. Purchase protection for your investments

Purchasing appliances and expensive electronics on your credit card is a good way to finance the purchase by making monthly payments. But another perk is that your purchases are protected against damage or theft. Should your recently purchased item end up damaged or stolen, you can file for replacement, repair or reimbursement.

6. Repairs and maintenance – extended warranties

Besides protecting your purchased goods against damage or theft through purchase protection, most cards will match and exceed the length of a manufacturer’s warranty on eligible items. In many cases, they will double the warranty so that you’re not liable for expensive, out-of-pocket repair costs too soon.

7. Protecting your travel plans – trip cancellation/delay coverage

Things can go wrong when traveling. Trip cancellation insurance reimburses you for non-refundable expenses, in the event that your trip is interrupted or cancelled outright for medical reasons, weather or other events. Delay coverage would provide hotel stays, clothing and toiletries.

8. Emergency fund – emergency travel assistance

If you’re traveling and your wallet is stolen, you probably will have issues accessing cash. Select credit cards can send you an emergency cash advance or a replacement card as quickly as one business day if you’re away from home and in trouble.

Bottom line

Many Americans feel like they don’t have as much information as they’d like on how to best manage their finances. With personal debt at an all time high, it’s important to create a plan to pay off debt, build an emergency savings funds and improve your credit score.

Leveraging all the features credit cards offer their customers can be a good way to help reach these goals. And every payment you make towards your credit card bill improves your credit score and overall financial health.