Just ask yourself: is the credit card working for you or are you working for your credit card? Most people’s answer to that question will depend on how they treat their “plastic pal” as credit cards are sometimes known. As many people with burned fingers will tell you, they didn’t realize that things had got so bad until very 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 plus points – 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 post that sounds great, 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 product. 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 saying 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 mind. And you would do good to remember the following too:
Dos.
1] Always plan for the purchases that you need and those that you just want. You need the essentials, but you only want everything else. The ability to make a distinction might help you plan sensibly.
2] If caught up in financial difficulties, it’s always good to talk to the credit card issuer who might adjust your payments. If you just default, that only helps to build up an unfavourable credit history and you might find yourself being denied credit next time.
3] Unless it is an emergency, staying within your credit limits will assist you a lot. If you have to spend over the credit card limit, keep 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 can always approach your issuer for a better deal. They want to retain you as a customer, so they will listen.
Don’ts
1] Do not use your credit card to purchase household items. It is very expensive in the long term.
2] Do not just pay the minimum amount. You will end up paying exorbitant amounts of interest. The quicker you are able to clear the debt the better.
3] Never use the credit card to buy items you can’t afford without the credit card.
If you are considering changing or getting a Credit Card, have a look at the free advice on our website about using Credit Cards wisely. Get a totally unique version of this article from our article submission service