Just ask yourself: is the credit card working for you or are you working for your credit card? Most people’s answer to this question will depend on how they treat their “plastic friend” as credit cards are sometimes known. As many people with burned fingers will tell you, they didn’t realize that things had become so bad until too late, because most credit card companies try so hard to make themselves sound like a charity. Well, take it from me, they aren’t.
But this is not an anti credit card campaign. They have their uses – in America, for example, if you want to rent a car, you have got to have a (major) credit card. But, consider this scenario:
You get an offer in the post that sounds great, maybe it’s a new television or refrigerator. But it costs $2,000. You have a credit card with a $5,000 limit, so you go out and buy the item right away. Often, this is how your repayment schedule will work out. Most credit cards charge a minimum percentage of the remaining 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 will come off the $2,000 you borrowed!
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 replaying in your head. And you would do good to remember the following too:
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 you are caught up in financial difficulties, it’s always a good idea to talk to the credit card issuer who might adjust your payments. If you simply default, that only helps to build up an unfavourable credit history and you might find yourself being denied credit in the future.
3] Unless it is an emergency, remaining 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 chock-full of information on credit cards with more favourable deals than you are currently enjoying, you may always approach your issuer for a better deal. They want to keep you as a customer, so they will listen.
Don’ts
1] Do not use your credit card to make household purchases. It’s very expensive in the long run.
2] Do not only pay the minimum amount necessary. You will end up paying exorbitant amounts of interest. The more quickly you are able to pay off the debt the better.
3] Never use the credit card to buy items you can’t afford.
If you are considering swapping or applying for a Credit Card, have a look at the free advice on our website about using Credit Cards wisely.
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