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My 6 rules of thumb for smart credit habits

Kelly Dilworth

If you’re having trouble controlling your credit card debt, periodic rule-of-thumb reminders for responsible credit use may help. That’s the finding of a new study published by the Urban Institute.

These nudges “can be an effective and inexpensive way to help people make better financial decisions,” the study authors wrote in an abstract.

During the study, funded by the Consumer Financial Protection Bureau and designed by the Doorways to Dreams Fund, nearly 14,000 Arizona Federal Credit Union customers who carry credit card balances were sent emails, targeted web banners at log-in and calendar magnets containing quippy “smart credit” tips.

For example, “Don’t swipe the small stuff. Use cash when it’s under $20,” resulted in study participants lowering their debt by an average of $104. (The credit union customers in the study started with an average card balance of $5,715.) However, a “Credit keeps charging; it adds about 20 percent to the total” reminder did not noticeably reduce participants’ card debt.

After the study was released, Washington Post columnist Michelle Singletary noted the power of the nudge: “My grandmother taught me that creating rules for your finances could help you in your money management.”

Following up on her suggestion and the study’s findings that pithy messages can get results, I pulled together these six rules of thumb I’ve learned over the years about how to smartly use credit:

1. “To thine own self be true.” Do some soul searching before you pick your next credit card. Your best credit card will be one that matches your budget, personal goals, style and spending habits.

2. What goes up must come down. Pay down your credit card bill as aggressively as you can afford, and avoid late fees and other penalty charges by paying your bills on time, every time.

3. Don’t bite off more than you can chew. Don’t charge more than you can afford to pay off in a reasonable period. Don’t sign up for a 0 percent or deferred interest card unless you can pay down the balance before the end of the promotional period. Also, do the math before signing up for a card with a large APR or annual fee.

4. Sweat the small stuff. Monitor your financial information. Make this a habit. Scan your bills for errors and unauthorized charges, pull your free credit reports from AnnualCreditReport.com and carefully read the fine print of any financial product you acquire.

5. Make your peace with paper. This rule comes from the consumer advocate Chi Chi Wu at the National Consumer Law Center. Don’t throw away or delete your financial records. Financial disorganization costs you. You might need those records later, and you may have a harder time retrieving them if you opt to receive your card statements online.

6. Expect rain, so start saving for it. Save at least three to six months or more of expenses in an emergency fund, keep your debt levels low and leave enough credit available on your credit cards to help tide you over in a pinch.

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