Which is the best way to manage a credit card to ensure your financial health?
Question 3 options:
Making the minimum monthly payment
Keeping your balance as close as possible to the maximum allowed
Paying the bill in full each month
Only using your credit card to get cash out of an ATM machine
Paying the bill in full each month
The best way to manage a credit card to ensure your financial health is by paying the bill in full each month. This helps you avoid accumulating interest charges and keeps your credit utilization ratio low, which is beneficial for your credit score. Making the minimum monthly payment may result in high interest charges and a long time to pay off the balance. Keeping your balance as close as possible to the maximum allowed can negatively impact your credit utilization ratio, potentially harming your credit score. Only using your credit card to get cash out of an ATM machine is generally not recommended as it usually incurs high fees and interest rates from the moment the cash is withdrawn.
The best way to manage a credit card to ensure your financial health is by paying the bill in full each month. Here's why:
1. Making the minimum monthly payment: This option is the least preferable because it only covers a small portion of the total balance. By making only the minimum payment, you will continue to accumulate interest on the remaining balance, which can quickly add up and become difficult to pay off in the long run. Consequently, your debt could increase, harming your financial health.
2. Keeping your balance as close as possible to the maximum allowed: This option is also not advisable. Carrying a high balance increases your credit utilization ratio, which measures how much of your available credit you are using. A high credit utilization ratio can negatively impact your credit score, making it harder for you to qualify for loans and credit in the future.
3. Paying the bill in full each month: This is considered the best approach to managing a credit card. When you pay your credit card balance in full each month, you avoid accruing interest charges. Additionally, it demonstrates responsible credit card usage to lenders, which can benefit your credit score and increase your chances of obtaining better loan terms in the future.
4. Only using your credit card to get cash out of an ATM machine: This should generally be avoided unless necessary. When you withdraw cash from an ATM using your credit card, you typically incur high-interest rates and transaction fees, which can quickly accumulate. It's better to use a debit card or cash for everyday purchases and save your credit card for emergencies or planned payments.
Remember to always keep track of your purchases, review your statements regularly, and develop a budget that aligns with your financial goals.