Ask yourself: does the credit card work for you or do you work for your credit card? Most people’s reply to that question will depend on how they treat their “plastic friend” as credit cards are often known. As many people with burned fingers will tell you, they didn’t realize that things had gotten so bad until very late, because most credit card offers try so much to sound like they are actually running a charity. Well, they aren’t.
But this is not an anti credit card campaign. They have their benefits – in the USA, for example, if you want to hire a vehicle, you have got to have a (major) credit card. But, consider this scenario:
You receive an offer in the mail that sounds good, maybe it’s a new TV or fridge. But it costs $2,000. You have a credit card with a $5,000 limit so you immediately purchase the item. Typically, here is how your repayment schedule will play out. Most credit cards charge a minimum percentage of the total balance (usually 2 percent) per month. Assuming the interest rate is 18 percent and you choose to repay the minimum amount of $40, $30 of that will go towards interest and only $10 towards the principle!
Sounds scary? It doesn’t have to be. The moral of the illustration is to use the credit card very, very carefully.
Credit Cards Dos and Don’ts
There is a lot of truth in the advice that credit cards are not a substitute for not having money. Every time you use a credit card this should be the theme song playing in your head. Moreover, you would be wise to remember the following as well:
Dos.
1] Always plan for the purchases that you need and those that you only want. You need the essentials, and you want everything else. The ability to make a distinction might help you plan wisely.
2] If caught up in financial difficulties, it’s always good to talk to the credit card issuer who might re-schedule your payments. If you just default, that only helps to build up a bad credit history and you might find yourself being denied credit next time.
3] Unless it is an emergency, staying within your credit limits will help you a great deal. If you must spend over the limit, ensure you are within manageable levels, say within 30 percent.
4] If your letterbox is full to the brim with details on credit cards that have better deals than you are currently receiving, you could always approach your issuer for a better deal. They want to retain your business, so they will hear you out.
Don’ts
1] Do not use your credit card to purchase household items. It is very expensive in the long term.
2] Do not only pay the minimum amount necessary. You will end up paying exorbitant amounts of interest. The more quickly you can pay off the debt the better.
3] Never use the credit card to buy things you can’t afford.
If you are thinking onswapping or applying for a Credit Card, check out the free advice on our web site on using Credit Cards wisely. Click here to get your own unique version of this article with free reprint rights.
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