by Raven Lebeau

Created on: March 13, 2009   Last Updated: January 30, 2010

When it comes to managing your personal finances, your credit card can be your best friend or your worst enemy. Use it wisely, and it will save you both time and money. However, a credit card mistake can have far-reaching consequences including interest, late fees, and damage to your credit score. Here are some common-sense tips for making sure your credit card is is an asset and not a liability.

1. Choose the right card. Avoid cards with an annual fee. Such cards often offer perks like cash back or airline miles, but for most people, the benefits won't add up to the amount of the annual fee. Also, try to get a credit limit sufficient to cover your basic expenses such as groceries as well as any utilities you plan to have charged to your card. Finally, look for a card that has a reward program you will use. People who travel love airline miles. My husband and I enjoy video games and electronics, so we love our Sony Visa card that gives us "Sony points".

Notice that I didn't mention APR or late fees in my discussion of choosing the right card. That's because you should never carry a balance on your credit card, and you should never be late on your bill. Since you won't be paying a dime of interest to your credit card company, APR shouldn't matter.

2. Keep one or two credit cards only, and keep them indefinitely. Your credit rating takes into account the total amount of credit you already have available. All those little department store cards add up against your credit rating, even if you never use them.

Another fact about credit scores is that having the same credit card for several years, and using it wisely, will actually help your credit rating. The fact that you maintained a positive financial relationship with a creditor for a long period of time is considered an indication that you can pay off debt.

3. Use your credit card for the basic expenses in your life such as groceries, health care, home repair, and when possible, utilities. There are several reasons for doing this. First of all, using a credit card removes the hassle of having to worry about how much cash you have in your pocket or even how much money you have in checking. Instead of keeping a large portion of your pay in your checking account or your wallet, you can transfer it to an interest bearing savings account and then transfer money out of savings if you need it to pay your credit card bill.

Second, by using a credit card for these regular expenses, you can earn cash back or rewards. Getting rewarded for your basic expenses is a no-brainer!

Finally, using a credit card for your regular expenses will help you manage and rein in those expenses. People who pay cash for their regular expenditures can easily lose track of how much they spend on what. Credit card users, however, get a monthly tally of their financial decisions. Some credit card companies are even analyzing customers' data for them and giving a breakdown of how much was spent on food, clothing, entertainment, etc. When you see where your money is going, you can decide how to manage it more efficiently.

4. Never carry a balance on your credit card. Always pay the balance in full by the due date. Never pay a cent in late fees or interest. The only exception to this rule would be in extreme emergencies such as an astronomical medical or home repair bill. Even then, it's vital to pay off that balance as soon as possible, even if it means taking out a home equity loan to do so. Credit card interest rates are almost always higher than other interest rates, and credit card debt is always damaging to your credit rating.

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